81 Of6
Friday
April 16, 1982
Part Ml
Environmental
Protection Agency
Standards Applicable to Owners and
Operators of Hazardous Waste
treatment, Storage, and Disposal
Facilities: Liability Requirements
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16544
Federal Register / Vol. 47, No. 74 / Friday, April 16, 1982'/ Rules and Regulations
ENVIRONMENTAL PROTECTION
AGENCY
40 CFR Parts 123,264 and 265
[SWH-FRU-2091-8]
Standards Applicable to Owners and
Operators of Hazardous Waste
Treatment, Storage, and Disposal
Facilities: Liability Requirements
AGENCY: Environmental Protection
Agency.
ACTION: Revised interim final rule.
SUMMARY: The Environmental Protection
Agency is today revising regulations of
January 12,1981, on liability coverage
requirements for hazardous waste
facility owners or operators. Under
these requirements, owners or operators
must demonstrate liability coverage for
bodily injury and property damage to
third parties resulting from facility
operations. The major revisions are:
addition of the option of a financial test
as a means of demonstrating liability
coverage to satisfy the requirements;
addition of the option of submitting a
certificate of insurance as evidence of
insurance; and changes in the
requirements for the endorsement and
certificate. In a future document, EPA
will propose to delete two provisions of
the January 12,1981 regulations. These
provisions are: the procedure to obtain a
variance for liability coverage
requirements; and the provision
allowing an owner or operator to use
Slate assumption of legal responsibility
for liability coverage to satisfy the
liability requirements. The January 12,
1981, regulations were issued under an
accelerated schedule imposed by a court
order. The revisions that are being made
today are necessary to eliminate
"unworkable aspects of the previous
regulations, improve their effectiveness,
and allow reasonable flexibility in
satisfying the requirements.
States applying for Phase n interim
authorization to carry out State
hazardous waste programs in lieu of
EPA must include liability requirements
substantially equivalent to those of
Parts 204 and 265 as a condition of such
authorization. EPA is amending its State
program authorization requirements to
provide that States which have already
submitted draft applications for Phase II
to EPA and which do not have liability
coverage requirements must establish
them as quickly as practicable but may
in the meantime receive Phase II interim
authorization.
DATES: Effective Dale for 40 CFR 264.147
and 265.147: July 15,1982; except for
§§ 264.147(a)(l)(i). (b)(l)(i), (b)(5). (c). (d)
and (f)(3)-(6); 264.151[g), (i), and (j); and
265.147(a)(l)(i). (b)(l)(i), (b)(5), (c), (d)
and (fK3)-(6), which contain information
collection requirements under review by
OMB.
Effective date for 40 CFR 123.129:
April 16,1982.
Comment date: EPA will accept public
comments on the revised regulation until
June 15,1982.
ADDRESSES: Comments should be sent
to Docket Clerk (Docket No. 3004),
Office of Solid Waste (WH-562), U.S.
Environmental Protection Agency, 401 M
St., SW., Washington, D.C. 20460.
Public Docket: The public docket for
these regulations is located in Room
S269-C, U.S. Environmental Protection
Agency, 401M St., SW., Washington,
D.C., which is open to the public from
9:00 a.m. to 4:00 p.m., Monday through
Friday, excluding holidays.
Submissions and Correspondence to
the Regional Administrator: All
documents and correspondence to be
submitted to the Regional Administrator
regarding these financial requirements
should be marked "Attention: RCRA
Financial Requirements" as part of the
address.
Copies of Regulations: Single copies of
these regulations will be available whi!<-
the supply lasts from the RCRA Hotline,
at the numbers given below.
FOR FURTHER INFORMATION CONTACT:
For general information call the RCRA
Hotline at (800) 424-9346 (toll-free) or
(202) 382-3000 or write to Emily Sano,
Desk Officer, State Programs and
Resource Recovery Division, Office of
Solid Waste (WH-563), U.S.
Environmental Protection Agency, 401 M
St., SW., Washington, D.C. 20460.
For information on implementation of
these regulations, contact the EPA
regional offices below:
Region I
Gary Gosbee, Waste Management
Branch, John F. Kennedy Building,
Boston, Massachusetts 02203, (617)
223-1591
Region II
Helen S. Beggun, Chief, Grants
Administration Branch; 26 Federal
Plaza, New York, New York-10007,
(212) 264-9860
Region III
Anthony Dorsatoni, Hazardous Materials
Branch, 6th and Walnut Streets,
Philadelphia, Pennsylvania 19106,
(215) 597-7937
Region IV
Dan Thoman, Residuals Management
Bran..h. 345 Courtland Street, N.E.,
Atlanta. Georgia 30308, (404) 881-306
Region V
Thomas Golz, Waste Management
Branch, 230 South Dearborn Street,
Chicago, Illinois 60604, (312) 886-4023
Region VI
Henry Onsgard, Attention: RCRA
Financial Requirements, 1201 Elm
Street, First International Building,
Dallas, Texas 75270, (214) 767-3274
Region VII
Robert L. Morby, Chief, Hazardous
Materials Branch, 324 E. llth Street,
Kansas City, Missouri 64106, (816)
374-3307
Region VIII
Carol Lee, Waste Management Branch,
1860 Lincoln Street, Denver, Colorado
80203, (303) 837-6258
Region IX
Richard Prociinier, Hazardous Materials
Branch, 215 Fremont Street, San
Francisco, California 94105, (415) 974-
8165
Region X
Kenneth D. Feigner, Chief, Waste
Management Branch, 1200 6th
Avenue, Seattle, Washington 98101,
(206) 442-1260.
SUPPLEMENTARY INFORMATION:
I. Authority
These regulations are issued under the
authority of Sections 1006, 2002(a), 3004,
3005, 3006 of the Solid Waste Disposal
Act. as amended by the Resource
Conservation and Recovery Act of 1976
(RCRA), as amended, 42 U.S.C. 6901,
6905, 6912(a), and 6924.
II. Background
Section 3004(6) of RCRA requires EPA
to establish financial responsibility
standards for owners or operators of
hazardous waste management facilities
as may be necessary or desirable to
protect human health and the
environment. On January 12,1981, EPA
promulgated regulations requiring
owners or operators to demonstrate
liability coverage for bodily injury and
property damage to third parties
resulting from facility operations. These
regulations were promulgated on an.
accelerated schedule imposed by a court
order, State of Illinois v. Costle, No. 78-
1689 et al. (D.D.C., December 18,1979).
On October 1,1981, FPA deferred the
effective date of these regulations and
announced its intent to publish a
proposal to eliminate the liability
requirements (46 FR 48197). The Agency
questioned whether these requirements
were necessary or desirable to meet the
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Federal Register /' Vol. 47, No. 74 / Friday. April 16. 1982 / Rules and Regulations
16545
requirements of RCRA. In response to
this announcement EPA received
considerable comment from the public,
regulated industries, insurance
companies, members of Congress, and
State agencies. These comments
indicated fairly wide-scale support for a
Federal liability coverage requirement
for hazardous waste management
facilities. There was virtually no
opposition to such a requirement.
Some commenters stated that the
liability requirements are important to
assure that funds will be available for
third parties seeking compensation for
bodily injury and property damage
arising from operation of the facilities.
They felt that without such
requirements, funds might not be
available to compensate injured parties
for damages, including payment for
medical care and environmental
restoration.
Other commenters argued that
without a Federal liability coverage
requirement there would be lessened
public confidence in and greater
opposition to proposed and existing
hazardous waste facilities. They saw the
liability requirements as an important
factor facilitating the establishment of
new and improved hazardous waste
facilities.
Commenters also expected liability
requirements to result in other potential
benefits for public health and the
environment. These include the
potential for improved design and
operation of the facility resulting from
the incentive of lower insurance
premiums and the oversight that
insurers might provide over facility
operations.
Based upon these comments the
Agency has concluded that the liability
requirements, although not "necessary"
requirements are viewed by the public
. and therefore by the Agency as a
desirable part of the RCRA regulatory
program. Therefore EPA is placing these
requirements in effect 90 .days from
today's date.
The financial responsibility standards
promulgated January 12,1981, included
requirements for both liability insurance
and for financial assurance for closure
and postclosure care. The amendments
promulgated today are limited to the
liability requirements; amendments to
the requirements for financial assurance
for closure and post-closure care-were
issued April 7,1982 (47 FR15032-15074).
A. Proposed Rules
Financial responsibility standards for
inclusion in Part 264 [standards to be
used in issuing permits) and Part 265
(interim status standards for existing
facilities awaiting final disposition of
permit applications) were first proposed
on December 18,1978 (43 FR 58995,
59006-07). The proposed regulations
included requirements for liability
coverage as Part 264 permit standards.
Insurance, self-insurance, or other
evidence of financial responsibility were
allowed as means of demonstrating
liability coverage. Facilities in interim
status were not required to have
coverage because it was questionable
whether insurance would be made
available to facilities without permits.
In its reproposal of financial
requirements on May 19,1980 (45 FR
33260-78), the Agency added a
requirement for coverage of sudden
accidenU.! occurrences for facilities in
interim status. This was done because
there was evidence that many owners or
operators already possessed liability
insurance covering sudden accidental
occurrences as part of their
comprehensive general liability policies
and that other owners or operators
should easily be able to obtain such
insurance. For nonsudden accidental
occurrences, however, availability of
coverage stilJ seemed doubtful for
facilities without permits.
B. Interim Final Rule of January 12, 1981
Under the liability requirements
(§§ 264.147 and 265.147) promulgated
January 12,1981, an owner or operator
of a hazardous waste treatment, storage,
or disposal facility was required to have
liability insurance for sudden accidental
occurrences arising from operations of
the facilities (minimum amount: $1
million per occurrence, $2 million annual
aggregate). If a facility was a surface
impoundment, landfill, or land treatment
facility, an owner or operator was
required to have insurance also for
claims resulting from nonsudden
accidental occurrences ($3 million per
occurrence, $6 million annual aggregate).
These requirements applied to both
interim status and permitted facilities.
Under variance provisions of the
regulations, the Regional Administrator
could adjust the amounts of coverage
required of an owner or operator, and he
could require coverage for nonsudden
accidental occurrences for facilities '
.other than land disposal facilities,
depending on determinations of risk at
the particular facilities.
Because availability of insurance for
nonsudden accidental occurrences was,
and still is, limited (although increasing),
the nonsudden accidental coverage
requirement was phased in over 3 years.
Owners or operators with the largest
sales (sales of $10 million or more) were
required to have the insurance 6 months
after the effective date; those with sales
between $5 and $10 million were
required to have the insurance a year
later, and th s remaining owners or
operators wore required to have it a
year after that.
As evidence of insurance coverage,
the January 12,1981, regulation requued
the owner or operator to submit a copy
of the insurance policy to the Regional
Administrator. Each policy had to have
an endorsement attached which related
to the regulatory requirement.
The preamble to the January 12,1981,
regulation stated that EPA was
considering whether an owner or
operator should be allowed to satisfy
the liability requirements by passing a
financial test, and requested comments
on wheiner such a provision should be
adopted.
C. Effective Date
The effective date for the January 12,
1981, regulations was deferred to April
13,1982 (notice published October 1,
1981, 46 FR 48197), because the Agency
was considering whether to propose
withdrawal of the liability requirements
and because amendments to the closure
and post-closure financial assurance
requirements were still in preparation.
For reasons sta: -ibove, EPA has
decided to proceed with liability
coverage requirements.
The new effective date for the liability
requirements is July 15,1982. Owners or
operators are reouired to submif
evidence of coverage for sudden
accidental occurrences by this date.
This extension is necessary to allow
owners or operators time to review
today's revisions in the requirements
and arrange tcrestablish evidence of
sudden accidental occurrence coversse
that conforms to these revised
requirem"-ts. Under the phase-in
schedule for the requirement for
nonsudden accidental occurrence
coverage, owners or operators with
annual sales or revenues of $10 million
or more will be required to submit
evidence of this coverage by January 16,
1983; those with annual sales or
revenues of So million to $10 million, by
January 16,1984 and all others by
January 16..1985.
Section 3010(b) of RCRA provides that
EPA's hazardous waste regulations and
revisions thereto take effect 6 months
after promulgation. A primary purpose
of the provision is to allow persons
affected by the: rulemaking sufficient
lead time to prepare for compliance with
major new regulatory requirements. The
Agency has set the effective date of
today's revised rule at 3 months rather
than 6 months From the date of
promulgation because the previous
requirements are not substantially
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m
changed except in ways that add greater
flexibility and feasibility regarding
compliance (i.e., addition of the
financial test as a means of satisfying
the requirements, the addition of the
option of^ubmitting a certificate of
insurance as evidence of insurance, and
changes in the language of the
endorsement to the insurance policy],
III. Revisions and Responses to
Comments
Because the January 12.1981,
regulations were promulgated on an
accelerated schedule, substantial
revisions were necessary. Revisions
included in today's regulations are as
follows:
• A financial test has been added as a
means of demonstrating liability
coverage to satisfy the requirements. In
order to demonstrate that he meets the
financial test, the owner or operator.
must submit to EPA statements from his
chief financial officer and from an
independent certified public accountant.
• In order to demonstrate that he has
obtained insurance, the owner or
operator can submit to EPA a certificate
of insurance instead of an endorsement
to the insurance policy.
• Changes have been made in the
Hazardous Waste Facility Liability
Endorsement. Essentially the same
language is specified for the new
certificate of insurance. The changes
are:
Language referring to the extent of an
insurer's liability has been revised;
The provisions concerning
cancellation of the policy have been
revised, but a requirement for 60 days'
notice of cancellation to EPA has been
retained; and
A requirement that insurers must give
EPA at least 30 days's notice of any
other termination of the policy, including
nonrenewal, has been added.
• Minimum qualifications for insurers
whose policies are used to satisfy the
requirements have been added and
proposals for additional qualifications
for insurers have been made.
• Acquirement that liability
coverage must be maintained until
certifications of closure are received by
EPA has been added.
• Provisions relating to the phasing in
of the requirement for coverage of
nonsudden accidental occurrences have
been clarified.
• A notification requirement has been
added for those o.wners or operators of
surface impoundments, landfills, or land
treatment facilities who are not required
to obtain coverage of nonsudden
accidental occurrences until 18 or 30
months after the effective date.
• A proposal has been made to
eliminate two provisions of the January
12,1981 regulation: the procedure to
obtain a variance for liability coverage
requirements; and the provision
allowing an owner or operator to use
State assumption of legal responsibility
for liability coverage to satisfy the
liability requirements.
The required minimum amounts of
coverage are unchanged: for sudden
accidental occurrences, $1 million per
occurrence with a $2 million annual
aggregate; for nonsudden accidental
occurrences, $3 million per occurrence
with a $6 million annual aggregate.
Liability insurance is required on an
owner or operator basis rather than a
facility basis because the use of an
annual aggregate coverage requirement
takes into account the risk of multiple
occurrences among facilities belonging
to one owner or operator.
The changes to the regulations are
discussed below, together with the
comments received from the public.
A. The Financial Test for Liability
Coverage
1. Proposal of December 1978. Under
the December 18,1978, proposed
regulation, an owner or operator could
provide the required liability coverage
by self-insuring for an amount not to
exceed 10 percent of equity [43 FR
59007). Many commenters recommended
that the Agency allow use of self-
insurance to satisfy the liability
requirements. Some commenters
suggested that the Agency should limit
self-insurance to percentages of equity
other than the 10 percent that was
proposed, and others suggested criteria
other than a percentage of a firm's
equity. Several commenters said that the
criteria should parallel those in EPA's
financial test for closure and post-
closure financial responsibility
(§§ 264.143, 264.145, 265.143, and
265.145).
The Agency gave these comments
extensive consideration. Based on its
analyses the Agency concluded that the
10-percent-of-equity measure was
inappropriate for several .reasons: the
Agency's analysis found that equity
amounting to 6 times the amount of
liability covered, rather than 10 times,
was sufficient: the equity percentage by
itself does not measure liquidity; and it
does not account for the significantly
higher failure rates of smaller owners or
operators! The Agency has developed a
financial test for liability coverage
which is more expropriate than the one
•that was proposed. ' . .
2. The Financial Test for Liability'
Coverage as Promulgated Today. An
owner or operator may pass the
financial test for liability coverage by
demonstrating that he meets either of
two sets of criteria.
Alternative I:
(A) Tangible net worth of at least $10
million; and
(B) Net working capital and tangible
net worth each at least six times the
amount of liability coverage to be
demonstrated by this test; and
(C) Assets in the United States
amounting to either: (1) at least 90
percent of total assets, or (2) at least six
times the amount of liability coverage to
be demonstrated by this test.
Alternative II:
(A) A current rating for its most recent
bond issuance of AAA, AA, A, or BBB
as issued by Standard and Poor's, or
Aaa, Aa, A, or Baa as issued by
Moody's; and
(B) Tangible net worth of at least $10
million; and
(C) Tangible net worth at least six
times the amount of liability coverage to
be demonstrated by this test; and
(D) Assets in the United States
amounting to either: (1) At least 90
percent of total assets, or (2) at least six
times the amount of liability coverage to
be demonstrated by this test.
Alternative I was developed for
testing owners or operators in
manufacturing industries likely to be
involved in hazardous waste
management. Alternative II allows
financially sound owners or operators in
industries that typically do not maintain
high net working capital (such as
electric utilities) to use the financial test..
By meeting the test, owners or operators
demonstrate that they are capable of
using their current assets to pay for
damages up to the amounts of annual
aggregate coverage required by the
regulations. Therefore the public is still
afforded reasonable assurance that
funds will be available to compensate
for damages which might result from the
operation of their hazardous waste
management facilities. Hence, the main .
objective of the liability requirements is
satisfied. When an owner or operator
demonstrates that he passes the test for
only a portion of the required amounts
of coverage, he must obtain liability
insurance for the remainder.
A bond rating is required in
Alternative II. An analysis of available
• data on the performance of the two
major bond rating services (Moody's
and Standard Poor's) showed that the
four highest ratings (investment-grade
bonds) demonstrate financial viability at
least equal to that indicated by meeting
the criteria of the first test option. Other
elements are included with the bond
rating in the second set of criteria in
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16547
order to assure that the owners or
operators have adequate assets for the
amounts of liability coverage to be
demonstrated. The Agency will initially
accept bond ratings issued only by
Moody's or Standard and Poor's.
However, in order to determine whether
there are other bond rating services that
could also be used, EPA request
information establishing how well the
ratings assigned by other bondrating
services have performed over time.
The Agency analyzed many potential
tests for liability coverage in
conjunction with its analysis of tests for
financial assurance for closure and post-
closure care. The analysis of tests for
both purposes is presented in detail in
background documents for the financial
tests, and the differences between the
two tests are explained.
3. Reporting Requirements. To
establish that he meets the financial test
for liability coverage, an owner or
operator uses the same procedures
specified for the, financial test to assure
funds for closure and post-closure care.
As evidence of satisfying the financial
test, an owner or operator must submit:
(1) A letter to the Regional "
Administrator signed by his chief
financial officer that includes the
, required data from the owner's or
operator's independently audited, year-
end financial statements, and
(2) A copy of the independent certified
public accountant's report on
examination of the owner's or operator's
financial statements for the latest
completed fiscal year; and
(3) A special report from the owner's
or operator's independent certified
public accountant to the owner or
operator stating that the accountant has
compared the data which the letter from
the chief financial officer specifies as
having been derived from the
independently audited, year-end
financial statements for the latest fiscal
year with the amounts in such financial
statements and, in connection with this
procedure, no matters came to his
attention which caused him to believe
that the specified data should be
adjusted.
If an owner or operator is using the
financial test to demonstrate both
liability coverage and financial
assurance for closure and post-closure
care, the same letter from the chief
financial officer setting forth the
required data must be used for both
purposes; the wording of the letter is
specified in § 264.151(g).
As in the case of the financial test for
closure and post-closure care, if the
auditor's opinion that is included in his
report on examination of the owner's or
operator's financial statements is an
adverse opinion or contains a disclaimer
of opinion, the owner or operator may
not use the financial test to satisfy the
financial requirements. An adverse
opinion states that the financial
statements do not present fairly the
financial condition of the owner or
operator in conformity with generally
accepted accounting principles. A
disclaimer of opinion states that the
auditor does not express an opinion on
the financial statements.
The Regional Administrator may.
disallow use of the financial test based
on other qualifications expressed in the
auditor's opinion of the owner's or
operator's financial statements. For
example, if the Regional Administrator
determines that the opinion raises
questions as to whether the owner or
operator will continue as a "going
concern," the financial test will be
disallowed. Other qualified opinions
will be evaluated on a case-by-case
basis. The owner or operator must
provide evidence of insurance for the
entire required amount of coverage
within 30 days after disallowance. •
After the initial submission of the
letter from the chief financial officer and
the accountant's reports, a new letter
and new reports for each subsequent
fiscal year must be submitted to the
Regional Administrator within 90 days
after the end of the firm's fiscal year.
Alternatively, by the end of this 90 day
period the owner or operator must
provide evidence of third-party liability
insurance coverage to the Regional
Administrator.
In some cases the effective date of the
regulations may come too soon after the
end of an owner's or operator's fiscal
year to allow adequate time to prepare
the required documents based on data
for the just-completed fiscal year. To
resolve this problem, the financial test
provisions allow a one-time extension if
an owner's or operator's fiscal year ends
during the 90 days before the effective
date and if the owner's or operator's
financial statements are being
independently audited. The extension
may last up to the date 90 days after the
end of the fiscal year. To obtain the
extension the chief financial officer must
send a letter to the Regional
Administrator by the effective date of
these regulations. In the letter he must
request the extension; certify that he has
grounds to believe that the owner or
operator meets the financial test criteria;
identify the facilities to be covered and
the amounts of liability coverage to be
demonstrated by the test; specify the
date when the owner's or operator's.
fiscal year ended; specify the date no
more than 90 days after the end of the
fiscal year when he will submit the
documents required; and certify that the
owner's or operator's year-end financial
statements are being independently
audited.
4. Use of Both the Financial Test and
Insurance, The financial test may be
applied to satisfy a portion of the
required amount of liability coverage. In
such cases, the owner or operator must
obtain liabiiuy insurance for the
remainder. This enables the owner or
operator to be responsible for the first
dollars of liability coverage, which are
the most expensive to cover through an
insurance policy. Use of such "self-
retention", or deductibles, is common
practice. The amount of self-retention
has a signficant effect on the amount of
premium charged. In using the test for
part of the required amount of coverage,
the owner or operator must use that
portion of the annual aggregate amount
($2 million for sudden accidental
occurrences a.nd $6 million for
nonsudden, accidental occurrences), that
is not covered by insurance as the base
for the multiples in the financial test.
5. Guarantees by Parent Corporations
To Enable Subsidiaries To Satisfy
Liability Requirements. The Agency
considered permitting subsidiary
corporations io rely on the assets of
their parent corporations to demonstrate
financial responsibility for the required
liability coverage. However, there are
major questions concerning the validity
and enforceabilily of such an
arrangement, especially as it may be
affected by State insurance laws.
Therefore guarantees by parent
corporations aire not included in today's
regulations.
B. The Certificate of Insurance
The January 12,1981, regulation
required owners or operators of
hazardous waste management facilities
to obtain insurance policies containing a
Hazardous Waste Facility Liability
Endorsement. The purpose of this
endorsement, which was to be worded
as specified in the regulations, was to
demonstrate that the owner or operator
had liability insurance coverage
required by the regulations.
The Agency received several -
significant comments in response to the
interim final regulation which suggested
that a certificate of insurance, like the
endorsement, was a reasonable
mechanism by which liability coverage
could be demonstrated. A certificate is a
statement obtained from the insurer
certifying that it has issued insurance as
described in the certificate. Unlike the '
endorsement, the certificate is not part
of the insurance policy itself. Insurers
suggested that the certificate of
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insurance would enable them to develop
policies and endorsements that serve
broader needs of the insured rather than
just the need for the insured to comply
with the requirements of this regulation.
In reviewing the practices of several
oilier Federal agencies, EPA has found
that those agencies require various
forms of evidence of liability ins-' mce:
endorsements; certificates;
endorsements and certificates; and
"insurance forms" which are in "effect
certificates in that they do not include
language that directly amends the
policy.
The Agency concluded from its
analysis of the issue that the certificate
is a reasonable mechanism by which
owners or operators can demonstrate
liability coverage. Therefore under this
revised ihterim final regulation the
owner or operator 5s allowed the option
of submitting a certificate of insurance
that has the same provisions as the
endorsement to demonstrate liability
coverage. As with the endorsement, if a
question arises about the adequacy of
an owner's or operator's coverage, EPA
can obtain and review the insurance
policy. In addition the Agency intends to
review a sample of policies to confirm
their adequacy in satisfying the purpose
of the regulation. Under the regulation.
owners or operators must provide a
copy of the policy to EPA upon request.
Allowing use of a certificate of
insurance as evidence of insurance
coverage was not part of the January 12,
1981, interim final regulation. However,
the Agency believes this option should
ba available in the revised interim final
rula because it provides adequate
assurance of coverage and allows
additional flexibility.
C, Changes In The Ena-trsenient
This section describes revisions made
* to the January 12,1981, endorsement
following evaluation of comments. The
now certificate of insurance has the
same provisions as the endorsement and
incorporates the changes described
below.
1. Extent of Coverage. Some
commenters said the wording of the
endorsement raised major problems
with respect to the extent of coverage
required by the regulations. The January
12,1981, regulations did not completely
define the scope, conditions, and terms
of coverage. However, the wording of
the endorsement required the insurer to
certify that'the policy to which the
endorsement was attached provides -
liability insurance "to the extent" such
coverage was required by EPA's
regulations. Commenters argued that
since the regulations did.not define
precisely the extent of coverage
required, the insurer.was exposed to an
uncertain extent of liability. This would,
they said, seriously impair the insurance
industry's willingness to provide the
insurance coverage required by EPA's
regulations.
The Agency recognizes the problems
cited by the commenters and, in
response, has revised the endorsement
to read that the insurer certifies that the
policy to which the endorsement is
attached provides liability insurance "in
connection with" an owner's or
operator's obligations under EPA's
regulations. The Agency did not intend
to modify the contractual obligations
arising from the insurance policies used
to satisfy the liability requirement. This
rewording eliminates the problem noted
by the commenters.
Other commenters suggested that EPA
adopt a set of specific standards for
insurance, precisely defining the extent
of coverage required for all hazardous
waste management facilities- In
response, the Agency has adopoted a
more specific definition of the extent of
coverage required by this regulation.
The regulation now defines the bodily
injury and property damage coverage
required by this regulation to be the
meaning given those terms by applicable
State law. However, the terms do not
include those liabilities which,
consistent with standard industry
practice, are excluded from coverage in
liability policies for bodily injury and
prope'rty damage. For example, the
ir -'.trance policy need not cover injuries
or damage caused by war, injuries
covered by worker's compensation or
disability benefits, or intentional
injuries. This action not only provides a
more precise definition of the extent of
coverage required but also establishes a
limitation on the exclusions which may
be in a policy used to satisfy the liability
requirement.
2. Coverage of Deductibles. A second
major issue raised by commenters
regarding the endorsement was its
language relating to de'ductibles. The
language was intended to ensure that
the insurer would satisfy liabilities from
accidents at a hazardous waste
management facility on a first-dollar
basis. This certification reduces the
burden on the Agency of reviewing the
level of the deductible in every policy
and determining whether the insured is
financially capable of paying claims
within the deductible. The commenters
sug^uted that this language could be
construed to possibly negate normal
policy provisions which defined the
level and conditions of the risks
assumed by the insurer under the policy.
After Devaluating the endorsement, the
Agency has eliminated wording that
those commenters suggested would
negate conditions, limitations, and
exclusions contained in the policy.
However, the owner or operator still
must have insurance coverage on a first-
dollar basis. The policy may allow
reimbursement by the insured for any
such payment within the deductible
limits. This provision docs not apply
with respect to the amount of any
deductible for which coverage is
demonstrated through the financial test
for liability coverage.
3. Cancellation, The Agency has been
concerned that some insurance
companies might cancel claims-made
insurance policies upon discovery of an
accidental occurrence at a
policyholder's facility. (Claims-made
policies provide coverage only for
claims that are filed during the active
life of the policy.) That could leave
owners or operators without adequate
coverage. To remedy this potential
problem the January 12,1981,
regulations contained two provisions: (1)
A requirement that coverage under a
claims-made policy could not be
cancelled or terminated for at least 120
days following an accidental occurrence
covered by the policy and (2) a
requirement that EPA be given 60 days'
advance nptice prior to any
cancellation. The major problem
associated with the 120-day
requirement, according to the
commenters, was that it effectively
conve''t»jd claims-made policies
(commonly used for pollution liability
insurance) into "occurrence-based"
policies. The commenters .contended
that an insurer could not be certain that
its exposure to liability under a claims-
made policy would end on the policy's
termination date^nd that if a new
accJBent occurred during the 120-day
period, a new period of 120 days could
be triggered.
After reexamining the issue; the
Agency agrees that the 120-day
requirement creates the potential for
open-ended liabilities on the part of the
insurers-. Such coverage would likely be
very expensive if available at all.
Because this could adversely affect the
availability of insurance, the 120-day
requirement has been eliminated.
However, the requirement for 60 days'
notice prior to cancellation has been
retained. Even if an insurance company
were to cancel its claims-made policy
upon learning of an accidental
occurrence at its insured's facility,
injured parties would still have at least
60 days in which to make claims.
Some commenters urged EPA to allow
cancellation upon a 10-day notice for
nonpayment of premium, bankruptcy, or
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Federal Register / Vol. 47, No. 74 / Friday, April 16, 1982 / Rules and Regulations. 16549
debtor relief proceedings brought by or
against an insured, or for failure to
comply with applicable rules governing
facility operations. The Agency
recognizes the interest of insurers in
limiting their exposure, but believes that
60 days' notice can be provided by most
insurers and is necessary for adequate
coverage of claims.
The original endorsement contained a
cancellation provision which required
that the policy be canceled when the
endorsement was canceled. A
commenter stated that this could cause
cancellation of policy coverages other
than those connected with the
endorsement. The Agency decided to
eliminate the requirement to avoid such
cancellation. Under the revised
cancellation provisions, the insurer may
cancel the policy or only the
endorsement after 60 days' notice to the
Regional Administrator.
4. Other Termination. The Agency
added a provision to the endorsement
that the insurer agrees to notify the
Agency at least 30 days prior to
termination of the policy (for reasons
other than cancellation). The notice will
serve io alert the Regional
Administrator of a potential gap in
liability coverage.
D. Other Liability Issues
1. 'Qualifications of Insurers, The
proposed liability requirements of May
19,1980 (45 FR 33273), provided that
owners or operators must obtain
insurance from insurers licensed or
eligible to insure in the jurisdiction
where any of the owner's or operator's
facilities are located. The Agency
received comments to the effect that
participation of insurers should not be
so restricted. The Agency evaluated the
issue and at that time concluded that is
was preferable to leave out
qualifications for insurers in order not to
restrict the market and availability of
insurance. The January 12,1981,
regulations, therefore, did not include
qualifications for insurers. Several
commenters on those regulations urged
EPA to establish insurer qualifications.
Minimum qualifications would help
assure the integrity of insurers whose
policies are used by owners or operators
to meet the liability requirements.
Therefore today's regulations require
owners or operators to obtain insurance
from insurers licensed to transact the
business of insurance, or eligible to
provide insurance as an excess or '
surplus lines insurer, in one or more
States. These qualifications will assure
that insurers are subject to some
regulatory oversight by State insurance
departments but will still permit broad
participation in providing the insurance..
EPA invites public comment on •
additional or different qualifications for
insurers. Qualifications for insurers
have been recommended by the
National Association of Insurance
Commissioners. The NAIC
recommended that the Agency adopt the
following requirement:
"The Regional Administrator shall not
accept insurance policies as complying
with this section unless such policies are
underwritten by an insurance institution
which:
"(1) Is domiciled in the United States
and authorized to transact tho business
of insurance as an admitted or
nonadmitted insurer in the state where
the insured facility is located, or
"(2) Is a captive insurer licensed
under a state law authorizing the
formation and operation of captive
insurers, or
. "(3) Is an alien insurer in good
standing on the Non-Admitted insurers
Quarterly List published by the Non- '
Admitted Insurers Information Office of
the National Association of Insurance
Commissioners."
One commenter said that policies
issued by "captive" insurance
companies, which often provide
necessary supplemental liability
coverage for large, financially capable
companies, should be accepted as
conforming with the requirement.
Another commenter urged EPA to accept
policies issued by captive insurers
domiciled outside the United States if
the captive has a parent corporation in
the United States to assume its
liabilities. The qualifications adopted in
today's regulation will not exclude
captive insurance companies, whether
domestic or foreign-based. Under these
requirements, captive insurers may •
qualify by obtaining a license in one of
the several States which currently
license captive insurers or by becoming
eligible or authorized as a surplus lines
or excess insurer in States with
standards for nonadmitted insurers.
One commenter said that the Agency
should permit only those insurers with a
rating of at least "A" in Best's Insurance
Reports and a Best's financial size rating
to issue policies used to satisfy the
liability requirements.
EPA invites public comment on the
qualifications suggested by the NAIC; on
whether specific standards for captive
insurers should be included; whether
ratings by Best's should be used and, if
so, what they should be; and any other
aspect of qualifications for insurers.
2. Availability of Insurance for
Nonsudden Accidental Occurrences.
Many commenters were concerned that
insurance for nonsudden, or gradual,
accidental occurrences will either not be
available or, if available, Vp trio
expensive, especially for stnjitor Finns.
As noted above, coverage for
nonsudden accidental occurrences
poses special problems to the insurance
industry because of the magnitude of the
potential risks and its lack of experience
with those risks. Therefore the
regulation provides for a 3-year phase-in
period of the requirement for coverage
of nonsudden accidental occurrences.
Ov\ .iers or operators with total sales or
revenues of $10 million or more in the
fiscal year preceding the effective date
of the regulations will have to establish
the coverage 6 months after the effective
date; those with annual sales ov
revenues over $5 million but less than
$10 million must have the coverage 18
months after1 the effective date; and all
others have up to 30 months after the
effective date to obtain nonsudden
accidental coverage. The purpose of this
phase-in is to encourage development of
a broad market for such liability
insurance by requiring larger firms
which can more readily obtain the
insurance to comply first. Smaller
owners or operators have an additional
1 to 2 years l.o comply, during which
availability of this insurance should
increase further.
The insurance market for coverage of
nonsudden a.ccidentdi occurrences has
recently responded to increasing .
demand and there are good indications
that this market c:an be expected to
expand considerably in the near-future.
After careful !y considering this issue,
the Agency has concluded that
insurance for nonsudden accidental
occurrences as required by these
regulations will be available in a
competitive aarket. However, this
conclusion is based upon an expected
expansion in. the number of firms
providing insurance for nonsudden
accidental occurrences. Consequently,
EPA will continue to monitor the
development of the market to ensure
that the requirements of this regulation
can be met.
Several details of the phase-in of the
required coverage of nonsudden
accidental occurrences have been
changed or added since the January 12,
1981, regulations. Since some owners or
operators may use the term "revenues"
rather than "sales" on their income
statements, both terms are now used in
the regulations. To avoid confusion
about whose sales or revenues are to be
used when the owner and operator are
different parties or if there is more than
one owner or operator, the regulation
now says the sales or revenues of the
owner or operator with the largest sales
or revenues in the fiscal year preceding
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1G550
Federal Register / Vol. 47, No. 74 / Friday. April 16, 1982 / Rules and Regulations
Ihe effective date of the regulations will
determine which of the three dates
applies. This is consistent with the
policy that the largest owners or
operators should be required to have
nonsudden coverage first in order to
encourage nimket development.
Compliance for a large owner or
operator should not be delayed because
it Is associated with a smaller one. The
revised regulations also specify that the
total sales or revenues of the owner or
operator must be considered, not only
sales or re\ enues from hazardous waste
management or particular locations.
The January 12,1981, regulations did
not contain a requirement that the
owners or operators of surface
impoundments, landfills, and land
treatment facilities report to the
Regional Administrator when they will
be required to obtain coverage for
nonsudden accidental occurrences. This
information is not only important for
monitoring compliance but also for
obtaining a more accurate measure of
the numbers of owners or operators that
will be needing insurance coverage
during each phase, in case adjustments
need to be made in the phase-in
schedule. "A provision has therefore
been added which requires owners or
operators in the second two r'uises ($5
million to $10 million and "all others") to
send a letter to the Regional
Administrator, within 6 months of the
effective date of th •* regulation, which
states when they intend to obtain the
required coverage.
One commenter said that not enough
time was allowed for the owners or
operators in the first phase to obtain
coverage for nonsudden accidental
occurrences, fhc i.ommen;er said the
problem arises because 3 to 4 months
are necessary to conduct engineering
and underwriting surveys and because
the accepted insurance industry practice
is to complete assessments for new risks
at least 60 days before the normal
January or July renewal dates for many
insurance policies. The 9-month period
between promulgation of the revised
requirements and the date by which the
first group must have coverage for
nonsudden accidental occurrences
should be sufficient time to obtain these
policies. As noted earlier, the market for
this coverage is expanding. Also, several
insurance companies have stated that
policies covering nonsudden accidental
occurrences are presently being written
in only 4 to 8 weeks. Furthermore, a
number of owners or operators in the
first phase will be able to employ the
financial test as a means of
demonstrating all or part of the required
coverage. The pressure on market
capacity will therefore be mitigated by
the availability of this alternative
mechanism.
One commenter suggested that the
phase-in requirement should be reversed
because smaller owners or operators are
more likely to need insurance policies to
be able to adequately cover liabilities.
However, in view of the limited
availability of the insurance at present
and the need to encourage market
growth, it would be counter-productive
to begin with those who may have the
most difficulty in obtaining liability
coverage.
3. Required Amounts of Coverage and
Variances. Some commenters stated the
minimum amounts of required coverage
were unusually high for government
mandated insurance and hence may
cause some small owners or operators
that are unable to afford the associated
premium to close their facilities. Others
commented that the $1 million/$2 •
million minimums for sudden accidental
occurrences were too low. Other
commenters suggested that the liability
coverage be tailored to the degree and
duration of risk at a facility and that the
required minimum amounts of coverage
be the same for sudden and nonsudden
accidental coverage because claims for
sudden accidental occurrences are not
always less than those for nonsudden
accidental occurrences.
Selecting the appropriate level of
insurance coverage is a difficult task in
the absence of actuarial data or
experience with a regulated hazardous
waste industry. EPA has compiled a
record of many of the hazardous waste
damage incidents that have occurred
around the country. The quality of .
information on these incidents varies
from complete reports of on-site
investigations to abbreviated newspaper
reports. The data on third-party
damages is sparse, but that which is
available shows that the coverage
requirements of this regulation are
adequate. -
Despite the lack of significant third
party damage awards in the past, a
growing number of court suits are being
filed and some request damages at
levels much higher than those required
by these regulations. If any of these suits
are successful the potential third party
damage costs associated with operating
hazardous waste facilities could become
much larger than currently available
data shows. EPA will continue to
monitor this situation and requests data
pertaining to changing needs for liability
coverage. • ,
The January 12,1981, regulations
inc aided a variance procedure whereby
an owner or operator who demonstrated
that the required liability coverage was
inconsistent with the degree and
duration of risks associated with his
facility or facilities, could obtain a
variance. Also, the Regional
Administrator could increase the
amounts of required coverage where
risks warrant higher levels of coverage
than that provided by the owner or
operator. The Regional Administrator
could also impose requirements for
coverage of nonsudden accidental
occurrences for, facilities that are not
surface impoundments, landfills, or land
treatment facilities if such facilities were
determined to pose risks of nonsudden
accidental occurrences.
There was significant public comment
on the variance procedures. Most
commenters stated that the procedures
were inadequate as they were too
general and too discretionary. While
there was support for the concept of a
variance, commenters stated that the
regulation should list specific criteria to
be used by the Regional Administrator
in making such decisions. Commenters
said that in the absence of such criteria
the variance was arbitrary and could,
result in inequitable treatment of owners
or operators.
The Agency is simply not able at this
time to establish specific standards for
variances. Risk assessment of
hazardous waste management facilities
is a fairly new practice ;or insurers.
There is not an extensive body of
actuarial data on this subject. At this
time it is not possible to establish '
standard criteria'that could be relied on
to account for the many diverse factors
that need to be considered on a case-by-
case basis.
Data is not available that would
enable EPA to set forth in a national
regulation the relationship-between
liability coverage requirements and
factors such as type of waste, size of
operation, method of treatment, storage
or disposal, and proximity to population
centers and groundwater and surface
water supplies.
EPA agrees with the commenters,'
concerns that the variance procedure in
its January 12,1981, regulation is
unworkable. Therefore, in a future
document, EPA will propose to delete
that procedure from the regulation. EPA
will request comments on the proposal
at that time and more importantly will
request data and information that could
be used to establish specific criteria for
a workable variance procedure.
In the absence of a variance
procedure all owners or operators will
have to obtain liability coverage at the
levels prescribed in the regulation.
However, differences in risk at different
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Rules and
16551
facilities should be reflected in the
premiums for insurance policies with
lower risk facilities paying less for the
required coverage.
4. Legal defense costs. In the January
12,1981, regulations, EPA required
owners or operators to obtain liability
insurance in specified amounts
exclusive of legal defense costs. This
was done because allowing defense
costs to be included within the policy
limits ("defense in limits") might
severely restrict the amount of
insurance coverage available to
compensate third parties. Unusually
large legal defense costs could result in
a significant erosion in the
compensation available. This is a
special problem for liability suits arising
out of the operation of hazardous waste
management facilities, as this is an area
opf expanding liability involving
potentially complex issues related to
causation and damage.
Some commenters objected to the
. requirement that the liability coverage
exclude legal defense costs for several
reasons. Some said that excluding legal
defense costs is contrary to insurance
industry practice. Others said that
excluding legal defense costs from
liability coverage would force premiums
up, and discourage insurers from
offering the required coverage. One
cpmmenter emphasized that the Agency
should alloiv insurers to issue policies
with defense hi limits in order to
increase the number of insurers willing
to issue policies to hazardous waste
management facilities. Another
commenter suggested that the Agency
require owners or operators to obtain
insurance policies with liability
coverage 25 percent greater than the
amounts otherwise applicable in order
to cover defense costs, but allow those
policies to be written with defense in
limits.
At the heart of the issue is the fact
that because hazardous waste
management facility insurance is a
relatively new market with little claims
history, it is not possible to estimate
with a reasonable degree of certainty
the legal defense costs associated with
these policies. This is precisely why the
current regulations retain the
requirement that insurance policy limits
exclude legal defense costs. High
defense costs can erode the coverage
amounts to the point where funds would
not be available to pay third party
damage costs.
EPA obtained comments from insurers
that indicated they would be in a
position to write policies which exclude
legal defense costs. Others stated that
this requirement is consistent with .
standard comprehensive general
liability policies. Some expressed a
preference for exclusion of legal defense
costs in order to keep these policies
consistent with other types of insurance
on the market. Therefore the required
coverage amounts are exclusive of
defense costs.
5. Period of Required Coverage. The
regulations of January 12,1981, and the
preceding proposals did not specify
when an owner or operator was no
longer required to assure liability
coverage. Coverage in these regulations
was for claims "arising from the
operations" of facilities, but the period
for which coverage was required was
not clearly defined. Coverage should
extend until closure because closure
activities could give rise to an accident
at the site. The present regulations
therefore require that the owner or
operator maintain liability coverage
until certifications of closure, as
specified in § § 264.115 and 265.115, are
received by the Regional Administrator.
6. Submission-of Policies. The January
12,1981, regulation required that owners
or operators send copies of insurance
policies used to comply with the liability
requirements to the Regional
Administrator. The purpose of this was
to give EPA an opportunity to review the
exclusions, terms, and conditions in
these policies.
Several commenters pointed out that a
review of all insurance policies would
impose a substantial burden on the
Agency, and requiring submission of
policies would be burdensome to
insurance companies and to owners or
operators. The current regulations only
require an owner or operator to submit a
policy if requested to do so by EPA. The
FRguiations now state thai L;, the
compliance date an owner or operator
must only send a signed duplicate ,
original of either the endorsement or
certificate of insurance to EPA. The
owner or operator must also send *•::
policy at a later date if requested to do
so by the Agency. In the endorsement
and the certificate the insurer also
agrees to submit a copy of the policy
and all endorsements to EPA if
requested.
7. Definitions and Usage. One .
commenter stated that the definitions of
liability and insurance terms in
§§ 264.141 and 265.141 are vague and do
not correspond to conventional
insurance definitions. Hence, this
commenter recommended that EPA
delete the definitions of these terms
from the regulations.
Today's regulations provide general
definitions of the coverage required of
policies which can be used to satisfy
these requirements. New definitions of
"bodily injury" and "property damage"
have been included to more explicitly
define required coverage (see previous
discussion on extent of coverage). The
other definitions are intended to be
consistent with common meanings. This
is so stated in the regulations. The
Agency will continue to consider
specific suggestions on how the
definitions can be improved.
Another commenter recommended
that the Agency's intended meaning of
the term "insurance policy" as used in
the regulations should be in accordance
with standard industry usage of the
term. The regulations are intended to
. follow standard industry usage.
Another commenter stated that the
regulations should not use the term
"occurrence" as in "nonsudden
accidental occurrence" because it
implies that the policy covering the
event must be an occurrence-based
policy. In using the word "occurrence"
the regulations did not intend to limit
policies to occurrence-based policies. As
indicated by the definition given for
"aeeidfirx-a]; occurrence" in §§ 264.141
and 265.141, the term means "an
accident, including continuous or
repeated exposure to conditions, which
results in bodily injury or property
damage neither expected nor intended
from the standpoint of the insured."
8. Other Provisions ofSubpartH
Financial Requirements. The liability
coverage requirements are - -ferred to in
§§ 264.148 and 265.148 (Incapacity of
Owners or Operators, Guarantors, or
Financial Institutions), §§ 264,149 and
265,149 (Use of State-Required
Mechanisms); and §§ 264.150 and
265.150 (State Assumption of
Responsibility). These sections have
relevance to me liability requirements
as follows:
« Under g § 264.148 and 265.148,' if the
insurer for the policy used to satisfy the
liability requirements enters bankruptcy
or has its authority to issue the policy
revoked or (suspended, the owner or
operator will have to establish
alternative liability coverage within 60
days after such an event.
• Under §§ 264.149 and 265.149. for a
facility located in a State where EPA is
administering the financial requirements
but where the State has hazardous
waste regulations that include
requirements for liability coverage, an
owner or operator may use State-
required financial mechanisms to satisfy
requirements of §§ 264.147 and 265.147 if
the Regional Administrator determines
that the State mechanisms are at. least
equivalent to mechanisms specified in
these regulations.
Sections 264.150 and 265.150 provide
that if a State assumes legal
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16552 Federal Register / Vol. 47. No. 74 / Friday. April 16, 1982 / Rules and
responsibility for an owner's or
operator's compliance with the liability
requirements of these regulations or
assures that funds will be available from
State sources to cover the requirements,
such'assurances may be used to satisfy
the liability requirements of §§ 264.147
or 265.147. EPA is not aware of any
instance where this is being done or
considered and therefore will propose in
a future document to delete this
provision as it applies !o liability
requirements. The Agency will request
comments on the proposal at that time.
9. Relation to CERCLA Provisions.
The Agency received comments on the
relation between the liability
requirements during operating life under
RCRA and post-closure liability
provisions of the Comprehensive
Environmental Response,
Compensation, and Liability Act of 1980,
Pub. L. 96-510 (CERCLA). One
commenter pointed out that a 5-year gap
in liability coverage may exist after a
facility has closed but before the Post
Closure Liability Trust Fund to be
established under CERCLA assumes
liability coverage.
EPA is not requiring liability coverage
after closure because the availability of
post-closure liability insurance is very
limited at this time. The problem of
liability coverage during the post-
closure period is currently being
examined in studies required by
CERCLA. The Treasury Department is
studying approaches based on private
insurance. EPA is studying the adequacy
of the Post-Closure Liability Trust Fund
as specified in the present provisions of
CERCLA.
Another commenter was concerned
that the "strict liability" concept in
CERCLA might adversely affect the
development of an insurance market
providing pollution liability coverage.
EPA has not observed a specific effect
on the pollution insurance market. As
noted earlier, the market is currently
expanding. This is probably due to a
number of factors including anticipation
of the RCRA liability requirements,
current economic conditions, and
demand resulting from increased
concern about pollution risks. The
CERCLA liability provisions as well as
numerous damage incidents have
probably contributed to this concern.
IV. Amendment to the State Program
Authorization Requirements
A, Amendment to 40 CFR 123.129
Section 3006 of RCRA provides that
States with "substantially equivalent"
hazardous waste programs can be
granted interim authorization to carry
out their State programs "in lieu of the
Federal program in those States. Interim
authorization is being granted in two
phases: Phase I [corresponding to the
Federal program promulgated on May
19,1980) and Pha'se U. (consisting of the
procedures and standards for permitting
hazardous waste management facilities).
See 40 CFR Part 123, Subpart F as
amended. 46 FR 8298 (January 26,1981).
Phase II will consist of several
components, two of which have been
announced to date. Component A covers
storage facilities and Component B
covers incinerators. EPA will announce
a component for land disposal facilities
in the future. In its January 26,1981,
notice of the content of Components A
and B (46 FR 7964), EPA explained that
States applying for Phase II Components
A and B authorization must demonstrate
substantial equivalence to'certain
Federal regulations, including the
financial requirements in Subpart H of
40 CFR Parts 264 and 265.
On October 1,1981, EPA announced
that it was considering withdrawing the
Federal liability insurance requirements
and deferred the effective date of those
requirements (see 46 FR 48197).
Subsequently, a few States submitted-
draft applications to EPA for
authorization of Components A and B
without liability requirements. Because
EPA was considering whether or not to
withdraw the Federal liability insurance
requirements, EPA informed such States
that they could receive interim
authorization for Components A and B
without State liability insurance
requirements. These States have relied
on the Agency's representation and are
developing final applications for such
authorization. Therefore, EPA today is
amending 40 CFR 123.129 to allow
interim authorizr.i;on of those States
which have submitted draft applications
to EPA prior to today's date without
State liability requirements. However,
such States must commit in their
Memorandum of Agreement to adopt
State liability coverage requirements
substantially equivalent to those in
Subpart H of 40 CFR Parts 264 and 265
as quickly as practicable but in no case
later than the State's application for an
additonal Component of Phase II interim
authorization.
• The liability coverage requirements
are an important part of the assurance
provided to the public by the RCRA
regulator program. In view of their
importance, EPA was reluctant to grant
this exemption to any States since the
liability requirements would not be in
effect within those States. However,
requiring those States which relied on
the Agency's comments on their draft
applications to make statutory or
regulatory amendments at this time
would cause substantial and
unnecessary disruption in the
authorization process. For that reason,
EPA decided to limit this exemption to
those States which have submitted their
draft Phase II interim authorization
applications to EPA by today's date.
B. Interim Final Promulgation
EPA believes that use of advance
notice and comment procedures for the
amendment to § 123.129 would be
impracticable and contrary to the public
interest, and therefore finds that good
cause exists for adopting this change in
interim final form (see 5 U.S.C
553(b)(B)). Delay in promulgating this
amendment could cause significant
harm to States which are applying for
interim' authorization. As noted above,
because EPA was considering
withdrawing its liability insurance
requirements, EPA told a few States that
they could receive interim authorization
for Components A and B without State
liability insurance requirements.
Because those States have relied on
EPA's statementa. the Agency is
amending the State authorization
requirements to allow them to receive
interim authorization in an orderly
fashion. If today's amendment to
§ 123.129 were not promulgated as an
interim final rule, those States which
have proceeded expeditiously toward
obtaining Phase II authorization and
which in good faith relied on EPA
representations about State program
authorization requirements would be
severely penalized. They would be
forced to make statutory or regulatory
amendments prior to receiving Phase II
authorization and thus their
authorizations could be dela. ed for
many months.
Today's amendment to § 123.129
provides an exception for those States
which requires them to adopt liability
coverage requirements as quickly as
possible, but allows them to receive
interim authorization if they meet all of
the other requirements of Part 123,
Subpart F.
C. Effective Date
Section 3010(b) of RCRA provides that
EPA's hazardous waste regulations and
revisions thereto take effect six months
after their promulgation. In addition, 5
U.S.C. 553(d) of the Administrative
Procedure Act requires that substantive
rules not become effective until at least'
30 days after promulgation. A primary
purpose of these requirements is to
allow persons affected by the
rulemaking sufficient lead time to
prepare to comply with major new
regulatory requirements. However, for
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_, Federal Register / Vol. 47^x74 / Friday. April 16. 1982 / Rules and Regulations
16553
the amendment promulgated today, the
Agency believes that delaying the
effective date for any period of time
wojild cause substantial and
unnecessary disruption in the
implementation of the State
authorization process and thus would be
contrary to the public interest.
As discussed above in the section on
interim final promulgation, today's
amendments relieve a restriction on
certain States. Thus the affected States
do not need lead time to comply with
these amendments. Indeed, significant
hardship to the affected States could
result if the effective date of today's
amendments were delayed.
Consequently, the Agency finds good
cause for making these amendment
effective immediately upon
promulgation.
V. Executive Order 12291
Executive Order 12291 (46 K< 13193,
February 19,1981} requires that EPA
prepare a Regulatory Impact Analysis
for each major rule. The Order defines a
"major rule" as any regulation that is
likely to result in:
• An annual effect on the economy of
$100 million or more;
• A major increase in costs or prices
for consumers, individual industries,
Federal. State, or local government
agencies or geographic regions; or
• Significant adverse effects on
competition, employment, productivity,
innovation, or on the ability of United
States-based enterprises to compete
with foreign-based enterprises in
domestic or export markets.
These revised regulations are not
"major" in themselves; rather, they are
changes to existing regulations that will
result in lower costs. Nevertheless, a
Regulatory Impact Analysis of these
requirements will be performed because
they constitute a significant component
of the body of RCRA regulations. The
final analysis is scheduled to be
completed in the spring of 1983, after the
Agency determines how it will comply
with Executive Order 12291 and
publishes that guidance in the Federal
Register.
Preliminary estimates of costs are as
follows:
The annual cost of liability insurance
for sudden accidental occurrences is
estimated to average $1,500 per site for
storage facilities and $3,000 per site for
other types of facilities. The average
annual cost of liability insurance for
nonsudden accidental occurrences is
estimated at $16,500 per site for landfills.
surface impoundments, and land
treatment facilities. These estimates are
in pre-tax dollars. Some of the costs of
liability insurance will be incurred in the
absence of the regulations. For example,
many existing facilities already have
coverage for sudden accidental
occurrences; At least half of total
premium payments will go to
compensating injured third parties: this
portion of the insurance costs may be
seen as transfer payments rather than as
costs to society.
The annual cost of the financial test is
estimated at $75~$100 per facility. This
is the cost of preparing the required
letter reporting financial data and the
cost of the auditor's report. It is assumed
that the user of the financial test will
have several sites.
Of approximately 11,000 hazardous
waste management facilities, about
2,800 are land disposal facilities thai
will ultimately be required to
demonstrate liability coverage for
nonsudden accidental occurrences
under State or Federal RCRA program.
VI. Paperwork Reduction Act
Under the Federal Reports Act of
1942, as amended by the Paperwork
Reduction Act of 1980, the Office of
Management and Budget [OMB) reviews
reporting requirements in regulations in
order to minimize the reporting burden
on respondents and the cost to
government. EPA submitted an
information collection report to OMB in
March 1981 covering the financial
responsibility mechanisms promulgated
as interim final regulations on January
12,1981.
The revised regulation promulgated
today substantially reduces the
reporting burden by requiring the owner
or operator to submit only the
endorsement or certificate o'' insurance
rather than the entire policy. The
.-vised regulation adds a requirement
that owners or operators of surface
impoundments, landfills, and land
treatment facilities who have less than
$10 million in sales or revenues must
notify the Regional Administrator within
6 months after the effective date (to
enable monitoring of the phase-in of the
requirement for coverage of nonsudden
accidental occurrences). However, this.
is a requirement for one-time reporting
by the owner or operator. Under the
Paperwork Reduction Act the
information provisions in this rule will
be submitted for approval to the Office
of Management and Budget (OMB).
They are not effective until OMB
approves them. A notice of that
approval will be published in the
Federal Register.
VII. Regulatory Flexibility Act
Under the Regulatory Flexibility Act
(5 U.S.C. 601 etseq.}, Federal ag- «des
must, in developing regulations, analyze
their impact on small entities (small
businesses, small government
jurisdictions, and small organizations).
This requirement applies to Federal
regulations proposed after January 1,
1981. Such an analysis will be conducted
in conjunction with the Regulatory
Impact Analysis.
VIII. Supporting Documents
A background document was
prepared for the regulations as
promulgsited January 12.1981. The most
significant issues raised by commenters
on the January 12 regulations are
discussed in this preamble. Responses
to othei v, ,,-nments are presented in a
summary that has been included in the
docket for these regulations. The
financial test for liability coverage is the
subject of a separate background
document. The background documents
are available for review in the EPA
regional office libraries and at the EPA
headquarters library, Room 2404
Waterside Mall, 401 M Street, S.W.,
Washington, D.C. 30460.
EPA is also preparing guidance
manuals on the financial requirements
to assist owners or operators and
regulatory officials and will make them
available from EPA ndadquarters and
the regional offices.
This regulation was submitted to the
Office of Management and Budget for
review as required by Executive Order
12291.
List of Subjects in 40 CFR Part 264
Hazardous materials. Packaging and
containers, Reporting and recordkeeping
requirements, Security measures, Surety
bonds. Waste treatment and disposal.
List of Subjects in 40 CFR Part 265
Hazardous materials, Packaging and
containers!, Reporting and recordkeeping
requirements, Security measures, Surety
bonds, Waste treatment and disposal,
Waste supply.
List of Subjects in 40 CFR Part 123
Hazardous materials, Indians—lands,
Reporting and recordkeeping
requirements, Waste treatment and
disposal, Water pollution control, Water
supply, Intergovernmental relations,
Penalties, Confidential business
information.
Dated: April 9,1982.
Anne M. Garsuch,
Administrator,
For the reasons set out in the
preamble, Title 40 CFR Parts 264, 265,
and 123 are amended as set forth below:
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16554 Federal Register / Vol. 47. No. 74 / F"day, April 16.
and
'PART 264—STANDARDS FOR
OWNERS AND OPERATORS OF
HAZARDOUS WASTE TREATMENT,
STORAGE, AND DISPOSAL
FACILITIES
Subpart H-»r!nancial Requirements
a. Section iSo4.141 is revised to read as
follows:
§ 264.141 Definitions of terms as used in
th!« subparl
(a) "Closure plan" means the plan for
closure prepared in accordance with the
requirements of § 264.112.
(b) "Current closure cost estimate"
means the most recent of the estimates
prepared in accordance with §§ 264.142
(a), (b}, and (c).
(c) "Current post-closure cost
estimate" means the most recent of the
estimates prepared in accordance with
§§ 264.144 [a), (b), and (c).
(d) "Parent corporation" means a
corporation which directly owns at least
SO percent of the voting stock of the
corporation which is the facility owner
or operator; the latter corporation is
deemed a "subsidiary" of the parent
corporation.
(e) "Post-closure plan" means the pian
for post-closure care prepared in
accordance with the requirements of
§§ 264.117-264.120.
(fj The following terms are used in the
specifications for the financial tests for
closure, post-closure care, and liability
coverage. The definitions are intended
to assist in the understanding of these
regulations and are not intended to limit
tho meanings of terms in a way that
conflicts with generally accepted
accounting practices.
"Assets" means all existing a: Jl
probable future economic benefits
obtained or controlled by a particular
entity.
"Current assets" means cash or other
assets or resources commonly identified
as those which are reasonably expected
to be realized in cash or sold or
consumed during the normal operating
cycle of the business.
"Current liabilities" means obligations
whose liquidation is reasonably
expected to require the use of existing
resources properly classifiable as
current assets or the creation of other
current liabilities.
"Independently audited" refers to an
audit performed by an independent
certified public accountant in
accordance with generally accepted
auditing standards.
"Liabilities" means probable future
sacrifices of economic benefits arising
from present obligai,..ns to tn?^sfer
assets or provide services to other
entities in the future as a result of past
transactions or events.
"Net working capital" means current
assets minus current liabilities.
"Net worth" mean's total assets minus
total liabilities and is equivalent to
owner's equity.
"Tangible net worth" means the
tangible assets that remain after
. deducting liabilities; such assets would
not include intangibles such as goodwill
and rights to patents or royalties.
(g) In the liability insurance
requirements the terms "bodily injury"
and "property damage" shall have the
meanings given these terms by
applicable State law. However, these
terms do not include those liabilities
which/ consistent with standard
industry practices, are excluded from
coverage in liability policies for bodily
injury and property damage. The
Agency intends the meanings of other
terms used in the liability insurance
requirements to be consistent with their
common meanings within the insurance
industry. The definitions given below of
e-veral of the terms *'-" intended to
assist in the understanding of these
regulations and are not intended to limit
their meanings in a way that conflicts
with general insurance industry usage.
"Accidental occurrence" means an
accident, including continuous or
repeated exposure to conditions, which
results in bodily injury or property
damage neither expected nor intended
from the standpoint of the insured.
"Legal defense costs" means any -
expenses that an insurer incurs in
defending against claims of third parties
brought under the terms and conditions
of an insurance policy.
"Nonsudden accidental occur'nnce" .
means an occurrence which takes place
over time and involves continuous or
repeated exposure.
"Sudden accidental occurrence"
means an occurrence which is not ,
continuous- or repeated in nature.
b. Section 264.147 is revised to read as
follows:
§ 264.147 Liability requirements.
(a) Coverage for sudden accidental
occurrences. An owner or operator of a
hazardous waste treatment, storage, or
disposal facility, or a group, of such
facilities, must demonstrate financial
responsibility for bodily injury and
property damage to third parties caused
by sudden accidental occurrences
arising L _;n operations of the facility or
group of facilities. The owner or
operator must have and maintain
liability coverage for sudden accidental
occurrences in the amount of at least $1
million per occurrence with an annual
aggregate of at least $2 million,
exclusive of legal defense costs. This
liability coverage may be demonstrated
in one of three ways, as specified in
paragraphs ,(a](l), (a)(2), and (a)(3) of
this section: .
(1) An owner or operator may
demonstrate the required liability
coverage by having liability insurance
as specified in this paragraph.
(i) Each insurance policy must be
amended by attachment of the
Hazardous Waste Facility Liability
Endorsement or evidenced by a
Certificate of Liability Insurance. The
wording of the endorsement must be
identical to the wording specified in
§ 264.1 =1 (i). The wording of the
certificate of insurance must be identical
to the wording specified in § 264.151(j).
The owner or operator must submit a
signed duplicate original of the
endorsement or the certificate of
insurance to the Regional Administrator.
or Regional Administrators if the
facilities are located in more than one
Region. If requested by a Regional
Administrator, the owner or operator
must provide a signed duplicate original
of the insurance policy. An owner or
operator of a new facility must submit
the signed duplicate original of the
Hazardous Waste Facility Liability
Endorsement or the Certificate of
Liability Insurance to the Regional
Administrator at least 60 days before *
the date on which hazardous waste is
first received for treatment, storage, or
disposal. The insurance must be
effective before this initial receipt of
hazardous waste.
(ii) Each insurance policy must be
issued by an insurer which, 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.
(2) An owner or operator may meet
the requirements of this section by
passing a financial test for liability
•> coverage as specified in paragraph (f) of
this section.
(3) An owner or operator may
. demonstrate the required liability
coverage through use of both the
financial test and insurance as these
mechanisms are specified in this
section. The amounts of coverage
demonstrated must total at least the
minimum amounts required by this
paragraph.
(b) Coverage for nonsudden
accidental occurrences. An owner or
operator of a surface impoundment,
landfill, or land treatment facility which
is used to manage hazardous waste, or a
group of such facilities, must
demonstrate financial responsibility for
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Federal Register / Vol. 47, No. 74 /Friday, April 16, 1982 / Rules aid Regulations
BB^naasa m\\umn^**jn,-aiaa^^^mmK^^nBmamtai^iM *\iM**tti>d*aagaaflxtr^^urtttumujKiKte^*ii\ \ 111 MI^I MI i in in n i *sgKaaga«aB«ii»irnii mi • •!!••»
16555
bodily injury and property damage to
third parties caused by nonsudden
accidental occurrences arising from
operations of the facility or group of
facilities. The owner or operator must
have and maintain liability coverage for
nonsudden nccidental occurrences in
the amount ot at least $3 million per
occurrence with an annual aggregate of
at least $6 million, exclusive of legal
defense costs. This liability coverage
may be demonstrated in one of three
ways, as specified in paragraphs (b)(l),
(bj(2), and (b)(3) of this section:
(1) An owner or operator may
demonstrate the required liability
coverage by having liability insurance
as specified in this paragraph.
(i) Each insurance nolicy must be
amended by attachment of the
Hazardous Waste Facility Liability
Endorsement or evidenced by a
Certificate of Liability Insurance. The
wording of the endorsement must be
identical to the wording, specified in
§ 264.151(i). The wording of the
certificate of insurance must be identical
to the wording specified in § 284.1510).
The owner or operator must submit a
signed duplicate original of the
endorsement c? the certificate of
insurance to the Regional Administrator,
or Regional Administrators if the
facilities are located in more than one
Reg.on. If requested by a Regional
Administrator, the owner or operator
( must provide a signed duplicate original
of the insurance policy. An owner or
operator of a new facility must submit
the signed duplicate original of the
Hazardous Waste Facility Liability
Endorsement or the Certificate of
Liability Insurance ta the Regional
Administrator at least 60 days before
the date on which hazardous vv;.,~te is
first received for treatment, storage, or
-- disposal. The insurance must be
effective before this initial receipt of
hazardous waste.
(ii) Each insurance policy must be
issued by an insurer which, 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.
(2) An owner or operator may meet
the requirements of this section by
passing a financial test for liability
coverage as specified in paragraph (f) of
this section.
(3) An owner .or operator may
demonstrate the required liability
coverage through use of both the
financial test and insurance as these
mechanisms are specified in this
"section. The amounts of coverage must
total at least the minimum amounts
required by this paragraph.
(4) For existing facilities, the required
liability coverage for nonsudden
accidental occurrences must be
demonstrated by the dates listed below.
The total sales or revenues of the owner
or operator in all lines of business, in the
fiscal year preceding the effective date
of these regulations, will determine
which of the dates applies. If the owner
and operator of a facility are two
different parties, or if there is more than
one owner or operator, the sales or
revenues of the owner or operator with
the largest sales or revenues will
determine the date by which the
coverage must be demonstrated. The
dates are as follows:
(i) For an owner or operator with sales
or revenues totalling $10 million or
more, 6 months after the effective date
of these regulations.
(ii) For an owner or operator with
sales or revenues greater than $5 million
but less than $10 million, 18 months af t<;r
the effective date of these regulations.
(iii) All other owners or operators, 30
months after the effective date of these
regulations.
(c) Request for variance. If an owner
or operator can demonstrate to the
satisfaction of the Regional
Administrator that the levels of financial
responsibility required by paragraphs
(a) or (b] of this section are not
consistent with the degree and duration
of risk associated with treatment,
storage, or disposal at the facility or
group of facilities, the owner or operator
may obtain a variance from the Regional
Administrator. The request for a
variance must be submitted to the
Regional Administrator as part of the
application under § 122.25 of this
Chapter for a facility that does not have
a permit, or pursuant to the procedures
for permit modification under § 124.5 of
this Chapter for a facility that has a
permit. If granted, the variance will take .
the form of an adjusted level of required
liability coverage, such level to be based
on the Regional Administrator's
assessment of the degree and duration
of risk associated with the ownership or
operation of the facility or group of
facilities. The Regional Administrator
may require an owner or. operator who
requests a variance to provide such
technical and engineering information as ,
is deemed necessary by the Regional
Administrator to determine a level of
financial responsibility other than that
required by paragraph (a) or (b) of this
section. Any request for a variance for a •
permitted facility will be treated as a
request for a permit modification under
§ § 122.15(a){7Hiii) and § 124.5 of this
Chapter.
(d) Adjustments by-the Regional
Administrator. If the Regional
Administrator determines that the levels
of financial responsibility required by
paragraph |aj or (b) of this section are
not consistent with the degree and
duration of risk associated with
treatment, storage, or disposal at the
facility or group of facilities, the
Regional Administrator may adjust the
level of financial responsibility required
under paragraph (aj or (b) of this section
as may be necessary to protect human
health and the environment. This
adjusted level will be based on the
Regional Administrator's assessment of
the degree and duration of risk
associated with the ownership or
operation of the facility or group of
facilities. In addition, if the Regional
Administrator de':.u-mines that there is a
significant risk to human health and the
environment from nonsudden accidental
occurrences resulting from the
operations of a facility that is not a
sutface impoundment, landfill, or land
treatment facility, he may require that
an owner or operator of the facility
comply with paragraph (b) of this
section. A;i owner or operator must
furnish to the Regional Administrator,
within a reasonable lime, any
infoimation which the Regional
Administrator requests to determine
whether cause exists for such
adjustments! of level or type of coverage.
Any adjustment of the level or type of
coverage for a facility that has a permit
will be treated as a permit modification
under f§ 122.15(a)(7)(ijii) and 124.5 of
this Chapter.
(e) Period of coverage. An owner or
operator must continuously provide
liability coverage for a facility as
required by this section until
certifications of closure of the facility, as
specified in § 264.115, are received by
the Regional Administrator.
(f) Financial test for liability
coverage. (1) An owner or operator may
satisfy the requirements of this section
by demonstrating that he passes a
financial test as specified in this
paragraph. To pass this test the owner
or operator must meet the criteria of'
paragraph (fKl)(i) or (f)(l)(iiji
(.i) The owner or operator must have:
(A) Net working capital and tangible
net worth eeich at least six times the
amount of liability coverage to be
demonstrated by this test; and
(B) Tangible net worth of. at least $10
million; and *
(C) Assets; in the United States •
amounting to either: (1) at least 90
percent of his total assets; or (2} at least
six times the amount of liability
coverage to be demonstrated by this
test.
(ii) The owner or operator must have:
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16556
Federal Register / Vol. 47, No. 74 / Friday, April 16, 1982 / Rules and Regulations
(A) A current rating for his most
recent bond issuance of AAA, AA. A, or
EBB as issued by Standard and Poor's.
or Aaa, Aa, A, or Baa as issued by , ;
Moody's; and
(B) Tangible net worth of at least $10
million; and
(C) Tangible net worth at least six
times the amount of liability coverage to
be demonstrated by this test; and
(D) Assets in the United States
amounting to either: (1] at least 90
percent of his total assets; or (2) at least
six times the amount of liability
coverage to be demonstrated by this
test.
(2) The phrase "amount of liability
coverage" as used in paragraph (f)(l) of
this section refers to the annual
aggregate amounts for which coverage is
'required under paragraphs (a) and (b) of
this section.
(3) To demonstrate that he meets this
test, the owner or operator must submit
the following three items to the Regional
Administrator:
(i) A letter signed by the owner's or
operator's chief financial officer and
worded as specified hi § 264.151(g). If an
owner or operator is using the financial
test to demonstrate both assurance for
closure or post-closure care, as specified
by §§ 264.143(1), 284.145(f), 265.143[e),
and 205.145(e), and liability coverage, he
must Submit the letter specified in
§ 264.151(g) to cover both forms of
financial responsibility; a separate letter
as specified in § 264.151(f) is not
required.
(if) A copy of the independent
certified public accountant's report on
examination of the owner's or operator's
financial statements for the latest
completed fiscal year.
(Hi) A special report from the owner's
or operator's independent certified
public accountant to the owner or
operator Stating that: ,
(A) He has compared the data which
the letter from the chief financial officer
specifies as having been derived from
the independently audited, year-end
financial statements for the latest fiscal
year with the amounts in such financial
statements; and
(B) In connection with that procedure,
no mailers came to his attention which
caused him to believe that the specified
data should be adjusted.
(4) An owner or operator of a new
facility must submit the items specified
in paragraph (f)(3) of this section to the
Regional Administrator at least 60 days
before the date on which hazardous
waste is first received for treatment,
storage, or disposal. ,.
(5) After the initial submission of
items specified in paragraph (fj(3) of t!v«
section, the owner or operator must
send updated information to the
Regional Administrator within 90 days
after the close of each succeeding fiscal
«year_This information mustqonsist of
all three items specified in paragraph
(fj(3) of this section.
(6) If the owner or operator no longer
meets the requirements of paragraph
(f)(l) of this section, he must obtain
insurance for the entire amount of
required liability coverage as specified
in this section. Evidence of insurance
must be submitted to the Regional
Administrator within 90 days after the
end of the fiscal year for which the year-
end financial data show that the owner
or operator no longer meets the test
requirements.
(7) The Regional Administrator may
disallow use of this test on the basis of
qualifications in the opinion expressed
bv the independent certified public
accountant in his report on examination
of the owner's or operator's financial
statements (see paragraph (f)(3)(ii) of
this section). An adverse opinion or .a
disclaimer of opinion will be cause for
disallowance. The Regional
Administrator will evaluate other
qualifications on an individual basis.
The owner or operator must provide
evidence of insurance for the entire
amount of required liability coverage as
specified in this section within 30 days
after notification of disallowance.
c. Section 264.151 is amended by
revising paragraph (g) and adding
paragraphs (i) and (j) to read as follows:
§ 264.151 Wording of the instruments.
*****
(g) A letter from the chief financial
officer, as specified in §§ 264.147(f) or
265.147(f) of this chapter, must be
•vorded as follows, except that
instructions in brackets are to be
.replaced with the relevant information
and the brackets deleted:
Letter from Chief Financial Officer (to
demonstrate liability coverage or to
demonstrate both liability coverage and
assurance of closure or post-closure care).
[Address to Regional Administrator of
every Region in which facilities for which
financial responsibility is to be demonstrated
through the financial test are located.]
I am the chief financial officer of [owner's
or operator's name and address]. This letter
is in support of the use of the financial test to
demonstrate financial responsibility for
liability coverage [insert "and closure and/or
post-closure care" if applicable] as specified
in Subpart H of 40 CFR Parts 264 and 265. •
[Fill out the following paragraph regarding
facilities and liability coverage. For each
facility, include its EPA Identification,
Number, name, and address.]
• The owner or operator identified above is
the owner or operator of the following
facilities for which liability coverage is being
demonstrated through the financial test
specified in Subpart H of 40 CFR Parts 264
and 265: .
[If you are using the financial test to
demonstrate coverage of both liability and
closure and post-closure care, fill in the
following four paragraphs regarding facilities
and associated closure and post-closure cost
estimates. If there are no facilities that belong
in a particular paragraph, write "None" in the
space indicated. For each facility, include its
EPA Identification Number, name, address,
and current closure and/or post-closure cost
estimates. Identify each cost estimate as to
whether it is for closure or post-closure care.]
1. The owner or operator identified above
owns or operates the following facilities for
which financial assurance for closure or post-
closure care is demonstrated through the
financial test specified in Subpart H of 40
CFR Parts 264 and 265. The current closure
and/or post-closure cost estimates covered
by the test are shown for each facility:
2. The owner or operator identified above
guarantees, through the corporate guarantee
specified in Subpart H of 40 CFR Parts 264
and 265, the closure and post-closure care of
the following facilities owned or operated by
its subsidiaries. The current cost estimates
for the closure or post-closure care so
guaranteed are shown for each facility:
3. In States where EPA is not administering
the financial requirements of Subpart H of 40
CFR Parts 264 and 265, this 'owner or operator
is demonstrating financial assurance for the
closure or post-closure care of the following
facilities through the use of a test equivalent
or substantially equivalent to the^financial
test specified in Subpart H of 40 CFR Parts
264 and 265. The current closure and/or post-
closure cost estimates covered by such a test
are shown for each facility: .
4. The owner or operator identified above
owns or operates the following hazardous
waste management facilities for which
financial assurance for closure or, if a
disposal facility, post-closure care, is not
demonstrated either to EPA or a State
through the financial test or any other
financial assurance mechanism specified in
Subpart H of 40 CFR Parts 264 and 265 or
equivalent or substantially equivalent State
mechanisms. The current closure and/or _
post-closure cost estimates not covered by
such financial assurance are shown for each
facility: .
This owner or operator [insert "is required"
or "is not required"] to file a Form 10K with
the Securities and Exchange Commission
(SEC) for the latest fiscal year.
The fiscal year of this owner or operator
ends on [month, day]. The figures for the .
following items marked with an asterisk are
derived from this owner's or operator's
independently audifed, year-end financial
statements for the latest completed fiscal
year, ended [date].
[Fill in part A if you are using the financial
!est to demonstrate coverage only for the
liability requirements.]
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Federal Register / Vol. 47, No. 74 / Friday, April 16, 1982 / Rules and Regulations 16557
Part A. Liability Coverage for Accident:i
Occurrences
[Fill in Alternative I if the criteria of
paragraph (f)[l)[i) of §§ 264.147 or 265.147 are
used. Fill in Alternative II if the criteria of
paragraph (Q(l)(ii) of §§ 264.147 or 265.147
are used.]
ALTERNATIVE I
s—
s
s
s: i __ -.,_.„„,
YES NO
1. Amount ol annual aggregate liability
coverage to be demonstrated
*2. Current assets
*3. Current liabilities
4. Net working capital (line 2 minus line
3)
"5. Tangible net worth
*6. If less than 90% of assets are locat-
ed in the U.S., give total U.S. assets
7, Is line S at least $10 million?
8. Is line 4 at least 6 times, line t?
9. Is line 5 at least 6 times line 1?
*10.-Are at least 90% of assets located
in the U.S.? It not, complete line 11.
ii. Is line 6 at least 6 times line 1? •
ALTERNATIVE II
1. Amount of annual aggregate liability
coverage to be demonstrated
2. Current bond rating of most recent
issuance and name of rating service
3. Date of issuance of bond
4. Date of mah-;\ of bond
*S. fangib.'e net worth
*6. Total assets in U.S. (required only II
less than 90% of assets are !«-;ated in
the U.S.)
7. Is line S at least $10 million?
8. Is line S at least s times line 1? —
*9. Are at least 90% of assets located in
the L S,? If not, complete line 10. —
10. Is line 6 at least 6 times line 1?
[Fill in part B if you are using the'financial
test to demonstrate assurance of both
liability coverage and closure or post-closure
care.]
Part B. Closure or Post-Closure Cnre and
Liability Coverage
[Fill in Alternative I if the criteria of
;. -graphs (f)fU{i} of § § 284.143 or 264.145
and (f)(l)(i) of § 264.147 are used or if the
criteria of paragraphs (e)(l)(i) of §§ 265.143 or
265.145 and (f)(l)[i) of § 265.147 are used. Fill
in Alternative II if the criteria of paragraphs
(f)(l)(ii) of §§ 264.143 or 264.145 and (f)(l)(ii)
of § 264.147 are used or if the criteria of
paragraphs (e)(l}(ii) of §§ 265.143 or 265.145
and (f)(l)[ii) of § 265.147 are used.]
ALTERNATIVE I
1. Sum of current closure and post-clo-
sure cost estimates (total of all cost
estimates listed above) $
2. Amount of annual aggregate liability
coverage 'to be demonstrated $ , L.
3. Sum opines 1 and 2 ' $ '.
*4. Total liabilities (if any portion of your
closure or post-closure cost estimates
is included in your total liabilities', you
may deduct that portion from this line
and add that amount to lines 5 and 6) S
ALTERNATIVE I—Continued
"5. Tangible net worth
•6. Net worth
•7. Curreht>as?9tSj2.'.-"E nca&mtOlfSl Klp'f' •'SjK
"8. Current liabilities •- -~»v.-..— -—?• <
S. Net working capital (line 7 minus line
8) i
"10. The sum of net income plus depreci-
ation, depletion, and amortization S
*11. Total assets In U.S. (required only \<
less than 90% of assets are located m
the U.S.) «
YES
NO
S —
s—
s—
yes
NO
12. Is line 5 at least $10 million?
13. Is line 5 at least 6 times line 3?
14. Is line 9 at least 6 times line 3?
•15. Are at least 90% of assets located
in the U.S.? If not. complete line 16
16. Is line 11 -at least 6 times line 3?
17. Is line 4 divided by line 6 less than
2.0?
18. Is line 10 divided by line 4 greater
than 0.1?
19. Is line 7 divided by line 8 greater than
1.5?
ALTERNATIVE II
• Sum or current closure and post-clo-
sure cost estimates (total of all cost
estimates listed above)
2. Amount of annual aggregate liability
coverage to be demonstrated
3. Sum of lines 1 and 2
4. Current bond rating of most recent
issuance and name of rating service
5. Date of issuance of bond
8. C-«:e of maturity of bond
*7. Tangible net worth (if any portion of
the closure or post-closure cost esti-
mates is ' ,.xd in "total liabilities"
on your linancial statements you may
add that portion to this line)
*9 Total assets in the U.S. (required only
' tesslhan 90% ol assets are located
in the U.S.)
9. Is line 7 at least $10 million?
10. Is line 7 at least 6 times line 3? ...
"11. Are at least 90% of assets located
in tha U.S.? If not, complete line 12
12. Is line 8 at least 6 times line 3?
I hereby certify that the wording of this
letter if. ldentical to the wording specified in
40 CFR _;,4,15i(g) as such regulations were.
constituted on the date shown immediately
below.
[Signature] •
[Name]
[Title]
[Date]
*****
(i) A hazardous waste facility liability
endorsement as required in § § 264.147
or 265.147 must be worded as follows,
except that instructions in brackets are
to be replaced with the relevant
information and the brackets deleted:
Hazardous Waste Facility Liability
Endorsement
1. This endorsement certifies that the
policy to which the endorsement is attached
provides liability insurance covering bodily
injury and property damage in connection
with the ins it rod's obligation to demonstrate
financial responsibility under 40 CFR 264.147
or 265.147. The coverage applies at [list EPA
Identification Number, name, and address for
each facility] for [insert "sudden accidental
occurrences," "nonsudden accidental
occurrences,"1 or "sudden and nonsudden
accidental occur. • noes"; if cox. crage is for
multi"ii! facilities and the coverage is
differ.' ; for different facilities, indicate
which facilities are insured for sudden
accidental occurrences, which are insured for
nonsudden accidental occurrences, and
which are insured for both]. The limits of
liability are [insert the dollar amount of the
"each occurrence" and "annual aggregate"
limits of the insurer's liability], exclusive of
legal defense costs.
2. The insurance afforded with.respect to
such occurrences is subject to all of the terms
and conditions of the policy; provided,
however, thai: any provisions of the policy
inconsistent with subsections (a) through (e)
of this Paragraph 2 are hereby amended to
conform with subsections (a) through (e):
(al Bankruptcy or insolvency of the insured
shall not relieve the Insurer of its obligations
under the policy to which this endorsement is
attached.
(b) The Insurer is liable for the payment of
amounts within any deductible applicable to
the policy, with" a right of reimbursement by
the insured f'./ any such payment made by
the Insurer. This provision does not apply
with respect to that amount of any deductible
for which coverage is demonstrated as
specified in 40 CFR 264.147[f) or 265.147(f).
(c) Whenever requested by a Regional
Administrator of the U.S. Environmental
Protection Agency (EPA), the Insurer agrees
to furnish to the Regional Administrator a
signed duplicate original of the'policy and all
endorsements. •
(dj Cancellation of this endorsement,
whether by the Insurer or the insured; will be
effective only upon written notice and only
after the expiration of sixty (60) days after a
copy of such written notice is received by the
Regional Administrators} of the EPA
Reglon(s) in which the facilityfles) is (are)
located.
(e) Any other termination of this
endorsement will be effective only upon
written notice and only after the expiration of
thirty (30) days after a copy of such written
notice is received by the Regional
Administratoi(s) of the EPA Region(s) in
which the facility(ies) is (are) located.
Attached to and forming part of policy No.
issued by [name of Insurer], herein
called the Insurer, of [address of Insurer] to
[name of insured] of [address] this — day of
, 19—. irhe effective date of said policy
is — day of , 19—.
I hereby certify that the wording of this
endorsement is identical to the wording
specified in 40 CFR 264.151(1) as such
regulation was constituted on the date first
above written, and that the Insurer is
-------
16558 Federal Register / Vol. 47. No. 74 / Friday-April16, 1982 /
licensed io transact the business of
insurance, or eligible to provide insurance as
an excess or surplus lines insurer, in one or
more States. -\nwa
[Signature of Authorized Representative of
Insurer]
(Typo name] '
[Title), Authorized Representive of [name of
Insurer]
[Address of Representative]
fj) A certificate of liability insurance
as required in §§ 264.147 or 265.147 must
be worded as follows, except that the
instructions in brackets are to be
replaced with the relevant information
and the brackets deleted:
Hazardous Waste Facility Certificate of
Liability Insurance
1> [Name of Insurer], (the "Insurer"), of
[address of Insurer] hereby certifies that it
has issued liability insurance covering bodily
Injury and property damage to [name of
insured], (the "insured"), of [address of
insured] in connection with the insured's
obligation to demonstrate financial
responsibility under 40 CFR 264.147 or
205.147. The coverage applies at [list EPA
Identification Number, name, and address for
each facility] for [insert "sudden accidental
occurrences," "nonsudden accidental
occurrences." or "sudden and nonsudden
accidental occurrences"; if coverage is for
multiple facilities and the coverage is
different for different facilities, indicate
which facilities are insured for sudden
accidental occurrences, which are insured for
nonsudden accidental occurrences, and
which are insured for both]. The limits of
liability are (insert the dollar amount 01 the
"each occurrence" and "annual aggregate"
limits of the Insurer's liability], exclusive of
legal defense costs. The coverage is provided
under policy number , issued on [date].
The effective date of said policy is [date].
2. The Insurer further certifies the following
with respect to the insurance described in
Paragraph 1:
(a] Bankruptcy or insolvency of the insured
shall not relieve the Insurer of its obligations
under the policy.
(b) The Insurer is liable for the payment of
amounts within any deductible applicable to
the policy, with a right of reimbursement by
the insured for any such payment made by
the Insurer. This provision does not apply
with respect to that amount of any deductible
for which coverage is demonstrated as
specified in 40 CFR 264.147{f) or 265.147(f).,
(c) Whenever requested by a Regional
Administrator of the U.S. Environmental
Protection Agency (EPA), the Insurer agrees
to furnish to the Regional Administrator a
signed duplicate original of the policy and all
endorsements.
td) Cancellation of the insurance, whether
by the Insurer or the insured, will be effective
only upon written notice and only after the
expiration of sixty '-'JO) days after a copy of
such written notice is received by the
Regional Administrators) of the EPA
Reglon(s) in which the facility(fcs) Is (are)
located.
(e) Any other termination of the insurant.*.
will be effective only upon written notion and
only after the expiration of thirty (30) days
after a copy of such written notice is received
by the Regional Administrator(s) of the EPA
Region(s) in wjncjiufte^acili{yj:iej5.j?,(are)
located. . .. ',.,5,
I hereby-certify that the wording of this
instrument is identical to the .wording
specified in 40 CFR 264.1510) as such
regulation was constituted on the date first
above written, and that the Insurer is
licensed to transact the businesj 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]
[Address of Representative]
PART 265—INTERIM STATUS
STANDARDS FOR OWNERS AND
OPERATORS OF HAZARDOUS WASTE
TREATMENT, STORAGE, AND
DISPOSAL FACILITIES
Subpart H—Financial Requirements
a. Section 265.141 is revised to read as
follows:
§ 265.141 Definitions of terms as used in
this subpart.
(a) "Closure plan" means the plan for
closure prepared in accordance with the
requirements of § 265.112.
(b] "Current closure cost estimate"
means the most recent of the estimates
prepared in accordance with § § 265.142
(a), (b), and (c). •
[c] "Current post-closure cost
estimate" means the most recent of the
estimates prepared in accordance with
§§ 265.144 (a), (b), and (c)..
(d) "Parent corporation" means a
corporation which directly owns at least
50 percent of the voting stock of the
corporation which is the facility owner
or operator; the latter corporation is
deemed a "subsidiary" of the parent
corporation.
(e) "Post-closure plan" means the plan
for post-closure care prepared in
accordance with the requirements of ^
§§265.117-265.120.
(f) The following terms are used in the
specifications for the financial tests for
closure, post-closure care, and liability
coverage. The definitions are intended
to assist in the understanding of these
regulations and are not intended to limit
the meanings of terms in a way that
conflicts with generally accepted
accounting practices.
"Assets" means all existing and all
probable future economic benefits
obtained or controlled by a particular
entity.
"Current assets" means cash or other
assets or resources commonly identified
as those which are reasonably expected
to be realized in cash or sold or
consumed during the normal operating
cycle of the business.
"Current liabilities" means obligations
whose liquidation is reasonably
expected to require the use of existing
resources properly classifiable as
current assets or the creation of other
current liabilities.
"Independently audited' refers to un
audit performed by an independent
certified public accountant in
accordance with generally accepted
auditing standards.
"Liabilities" means probable future
sacrifices of economic benefits arising
from present obligations to transfer
assets or provide services to other
entities in the future as a result of past
transactions or events.
"Net working capital" means current '
assets minus current liabilities.
"Net worth" means total assets minus
total liabilities and is equivalent to
owner's equity.
"Tangible net worth" means the
tangible assets that remain after
deducting liabilities; such assets would
not include intangibles such as goodwill
and rights to patents or royalties.
(g) In the liability insurance
requirements the terms "bodily injury"
and "property damage" shall have the
meanings given these terms by
applicable State law. However, these
terms do not include those liabilities
w.hich, consistent with standard
industry practice, are excluded from
coverage in liability policies for bodily
injury and property damage. The
Agency intends the meanings of other
terms used in the liability insurance
requirements to be consistent with their
common meanings within the insurance
industry. The definitions given below of
several of the terms are intended to
assist in the understanding of these
regulations and are not intended to limit
their meanings in a way that conflicts
with general insurance industry usage.
"Accidental occurrence" means an
accident, including continuous or
repeated exposure to conditions, which
results in bodily injury or property
damage neither expected nor intended
from the standpoint of the insured.
"Legal defense costs" means any
expenses that an insurer incurs in
defending against claims of third parties
brought under the terms and conditions
of an insurance policy.
"Nonsudden accidental occurrence"
means an occurrence which takes place
. over time and involves continuous or
repeated exposure.
"Sudden accidental occurrence"
means an occurrence which is not
continuous or repeated in nature.
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Federal Register / Vol. 47, No. 74 / Friday, April 16. 1982 / Rules and Regulations 16559
b. Section 265.147 is revised to read as
follows:
§ 265.147 Liability requirements.
(a) Coverage for sudden accidental
occurrences. By the effective date of
these regulations, an owner or operator
of a hazardous waste treatment, storage,
or disposal facility, or a group of such
facilities, must demonstrate financial
responsibility for bodily injury and
property damage to third parties caused
by sudden accidental occurrences
arising from operations of the facility or
group of facilities. The owner or
operator must have and maintain
liability coverage for sudden accidental
occurrences in the amount of at least $1
million per occurrence with an annual
aggregate of at least $2 million,
exclusive of legal defense costs. This
liability coverage may be demonstrated
in one of three ways, as specified in
paragraphs (a)(l), (a)[2), and (a)(3) of
this section:
(1) An owner or operator may
demonstrate the required liability
coverage by having liability insurance
as specified in this paragraph.
. (i) Each insurance policy must be
amended by attachment of the
Hazardous Waste Facility Liability
Endorsement or evidenced by a
Certificate of Liability Insurance. The
wording of the endorsement must be
identical to the wording specified in
§ 264.151(i). The wording of the
certificate of insurance must be identical
to the wording specified in § 264.151(j).
The owner or operator must submit a
signed duplicate original of the
endorsement or the certificate of
insurance to the Regional Administrator.
or Regional Administrator if the
facilities are located in more-than one
Rsgion. If requested by a Regional
Administrator, the owner or operator
must provide a signed duplicate original
of the insurance policy. -
(ii) Each insurance policy must be
issued by an insurer which, 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.
(2) An owner or operator may meet
the requirements of this section by
passing a financial test for liability
coverage as specified in paragraph (f) of
this section.
(3) An owner or operator.may
demonstrate the required liability
coverage through use of both the
financial test and insurance as these
mechanisms are specified in this
section. The amounts of coverage
demonstrated must total at least the
minimum amounts required by this
paragraph.
(b) Coverage.for•ndnSudden M i^o^i
accidental occurrences. An owner'^or'*350"
operator of a surface impoundment,
landfill, or land treatment facility which
is used to mauuge hazardous waste, or a
group of such facilities, must
demonstrate financial responsibility for
bodily damage and property damage to
third parties caused by nonsudden
accidental occurrences arising from
operations of the facility or group of
facilities. The owner or operator must
have and maintain liability coverage for
nonsudden accidental occurrences in
the amount of at least $3 million per
occurrence with an annual aggregate of
at least $6 million, exclusive of legal
defense costs. This liability coverage
may be demonstrated in one of three
ways, as specified in paragraphs (b)(i),
(b'{2), and (b)(3) of this section:
(1) An owner or operator may
demonstrate the required liability
coverage by having liability insurance
as specified in this paragraph.
(i) Each insurance policy must be
amended by attachment of the
Hazardous Waste Facility Liability
Endorsement or evidenced by a
Certificate of Liability Insurance. The
wording of the endorsement must be
identical to the wording specified in
. § 264.151(i).'The wording of the
certificate of insurance must be identical
to the wording specified in § 264.151(j).
The owner or operator must submit a , '
signed duplicate original of the
endorsement or the certificate of
insurance to the Regional Administrator,
or Regional Administrators if the
facilities are located in more than one
Region. If requested by a Regional
Administrator, the owner or operator
must provide a signed duplicate original
of the insurance policy.
(ii) Each insurance policy must be
issued by an insurer which, 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.
(2) An owner or operator may meet
the requirements of this section by
passing a financial test for liability
coverage as specified in paragraph (f) of
this section..
(3) An owner or operator may
demonstrate the required liability
coverage through use of both the
financial test and insurance as these
mechanisms are specified in this
section. The amounts of coverage must
total at least the minimum amounts
required by this paragraph.
(4) The required liability coverage for
nonsudden accidental occurrences must
be demonstrated by the dates listed
below. The total sales or revenues of the
owner or operator in all lines of
business, in the fiscal year preceding the
effective date of these regulations, will
determine which of the dates applies. If
the owner and operator of a facility are
two different parties, or if there is more
than one owner or operator, the sales or
revenues of the owner or operator with
the largest sales or revenues will
determine the date by which the
coverage must be demonstrated. The
dates are as follows:
(i) For an owner or operator with sales
or revenues totalling $10 million or
more, 6 months after the effective date
of these regulations.
(ii) For an owner or operator with
sales or revenues greater than $5 million
but less than $10 million, 18 months after
the effective date of these regulations.
(iii) All other owners or operators, 30
months after the effective date of these
regulations.
(5) By the date 6 months after the
effective date of these regulations an
owner or operator who is within either
of the last two categorir (paragraphs
(b)(4)(ii) or (b)(4)(iii) of this section)
must, unless he has demonstrated
liability coverage for nonsudden
accidental occurrences, send a letter to
the Regional Administrator stating the
date by which he plans to establish such
coverage.
(c) Request for variance. If an owner
or operator can demonstrate to the
satisfaction of the Regional
Administrator that the levels of financial'
responsibility required by paragraphs
(a) or (b) of this section are not
consistent with the degree and duration
of risk associated with treatment,
storage, or disposal at the facility or
group of facilities, the owner or operator
may obtain a. variance from the Regional
Administrator. The request for a
variance must be submitted in writing to
the Regional Administrator. If granted,
the variance will take the form of an
adjusted level of required liability
coverage, such level to be based on the
Regional Administrator's assessment of
the degree and duration of risk ,
associated with the ownership or
operation of the facility or group of
facilities. The! Regional Administrator
may require an owner or operator who
requests a variance to provide such
technical and! engineering information as
is deemed necessary by the Regional
Administrator to determine a level of
financial responsibility other than that
required by paragraphs (a) or (b) of this .
section. The Regional Administrator will
process a variance request as if it were
a permit modification request under
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16560 Federal Register / Vol. 47. No. 74 /.Friday. April 16. 1982 / Rules and.Regulations
§ 12215(a)(7)(iii) of this Chapter and
subject to the procedures of § 124.5 of
this Chapter. Notwithstanding any other
provision, the Regional AdministratoriiMu
may hold a public hearing at his - : '";
discretion or whenever he finds, on the
bisis of requests for a public hearing, a
significant degree of pubic interest in a
tentative decision to grant a variance.
(d) Adjustments by the Regional
Administrator. If the Regional
Administrator determines that the levels
of financial responsibility required by
paragraphs (a) or (b) of this section are
not consistent with the degree and
duration of risk associated with
treatment, storage, or disposal at the
facility or group of facilities, the
Regional Administrator may adjust the
level of financial responsibility required
under paragraphs (a) or (b) of this
section as may be necessary to protect
human health and the environment. This
adjusted level will be based on the
Regional Administrator's assessment of
the degree and r! .ration of risk
associated with the ownership or
operation of the facility or group of
facilities. In addition, if the Regional
Administrator determines that there is a
significant risk to human health and the
environment from nonsudden accidental
occurrences resulting from the
operations of a facility that is not a
surface Impoundment, landfill, or land
treatment facility, he may require that
an owner or operator of the facility
comply with paragraph (b) of this
section. An owner or operator must
furnish to the Regional Administrator,
within a reasonable time, any
information which the Regional
Administrator requests to determine
whether cause exists for such
adjustments of level or type of coverage.
The Regional Administrator will process
an adjustment of the level of required
coverage as if it were a permit
modification under § 122.15{a)(7)pii) of '
this Chapter and subject to the
procedures of § 124.5 of this Chapter.
Notwithstanding any other provision,
tha Regional Administrator may hold a
public hearing at his discretion or
whenever he finds, on the basis of^
requests for a public hearing, a
significant degree of public interest in a
tentative decision to adjust the level or
type of required coverage.
(e) Period of coverage. An owner or
operator must continuously provide
liability coverage for a facility as
required by this section until
certifications of closure of the facility, as
specified in § 285,115, are received by
the Regional Ad;r rnislrator.
if) Financial test far liability
coverage. (1) An owner or operator may
satisfy the requirements of this section
by demonstrating that he passes a
financial test as specified in this
.paragraph. To^pass'-this test_the ow/ner
'or operator must meet the criteria W
paragraph (£)(!)(!) or (f)(l)pi):
p) The owner or operator must have:
(A) Net working capital and tangible
net worth each at least six times the
amount of liability coverage to be
demonstrated by this test; and
(B) Tangible net worth of at least $10
million; and
(C) Assets in the United States
amounting to either: (1) At least 90
percent of his total assets; or (2) at least
six times the amount of liability
coverage to be demonstrated by this
test.
(ii] The owner or operator must have:
(A) A current rating for his most
recent bond issuance of AAA, AA, A, or
BBB as issued by Standard and Poor's,
or Aaa, Aa, A, or Baa as issued by
Moody's; and
(B) Tangible net worth of at least $10
million; and
(C) Tangible net worth at least six
times the amount of liability coverage to
be demonstrated by this test; and
(D) Assets in the United States
amounting to either: (1) at least 90
percent of his total assets; or (2) at least
six times the amount of liability
coverage to be demonstrated by this
test.
(2) The phrase "amount of liability
covo:-;iyo" as used in paragraph (f)(l) of
this section refers to the annual
aggregate amounts for which coverage is
required under paragraphs (a) and (b) of
this section.
(3) To demonstrate that he meets this
test, the owner or operator must submit
the following th;vc items to the Regional
Administrator:
(i) A letter signed by the owner's or
operator's chief financial officer and
worded as specified in § 264.151(g). If an
owner or operator is using the financial
test to demonstrate both assurance for
closure or post-closure care, as specified
by §§ 264.143(f), 264.145(f), 265.143(e),
and 265.145(e), and liability coverage, he
must submit the letter specified in
§ 264.151(g) to cover both forms of
financial responsibility; a separate letter
as specified in § 264.151 (fj is not
required.
pi) A copy of the independent
certified public accountant's report on
examination of the owner's or operator's
financi.il statements for the latest
completed fiscal year.
pii) A special report from the owner's
or operator's independent certified
public accountant to the owner or
operator stating that:'
(A) He has compared the data which
the letter from the chief financial officer
specifies as having been derived from
the independently audited, year-end
financial statements for the latest fiscal
year with the amounts in such financial .
statements; and
(B) In connection with that procedure,
no matters came to his attention which
caused him to believe that the specified
data should be adjusted.
[4) The owner or operator may obtain
a one-time extension of the time allowed
for submission of the documents
specified in paragraph [f)(3) of this
section if the fiscal year of the owner or
operator ends during the 90 days prior to
the effective date of these regulations
and if the year-end financial statements
for that fiscal year will be audited by an •
independent certified public accountant.
The extension will end no later than 90
days after the end of the owner's or
operator's fiscal year. To obtain the
extension, the owner's or operator's
chief financial officer must send, by the
effective date of these regulations, a
letter to the Regional Administrator of
each Region in which the owner's or
operator's facilities tc- be covered by the
financial test are located. This letter
from the chief financial officer must:
(i) Request the extension;
(ii) Certify that he has grounds to
believe that the owner or operator meets
the criteria of the financial test;
pii) Specify for each facility to be
covered by the test the EPA
Identification Number, name, address,
the amount of liability coverage and,
when applicable, current closure and
post-closure cost estimates to be
covered by the test;
(iv) Specify the date ending the
owner's or operator's last complete
fiscal year before the effective date of
these regulations;
(v) Specify the date, no later than 90
days after the end of such fiscal year,
when he will submit the documents
specified in paragraph (f)(3) of this
section; and
(vi) Certify that the year-end financial
statements of the owner or operator for
such fiscal year will be audited by an
independent certified public accountant.
(5) After the initial submission of
items specified in paragraph (f)(3) of this
section, the owner or operator must
send updated information to the
Regional Administrator within 90 days
after the close of each succeeding fiscal
year. This information must consist of •
all three items specified in paragraph
(f)(3) of this section.
(B) If the owner or operator no longer
meets the requirements of paragraph
(f)(l) of this section, he must obtain
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Federal Register / Vol. 47, No. 74 / Friday, April 16. 1982 / Riiles and Regulations 16561
insurance for the entire amount of
required liability coverage as specified
in this section. Evidence of insurance
must be submitted to the Regional
Administrator within 90 days after the
end of the fiscal; year for which the year-
end financial data show that the owner
or operator no longer meets the test
requirements. •
(7) The Regional Administrator may
disallow use of this Sest on the basis of
qualifications in the opinion expressed
by the independent certified public
accountant in his report on examination
of the owner's or operator's financial
statements (see paragraph [f)(3](ii) of
this section). An adverse opinion or a
disclaimer of opinion will be canst; For
disallowance. The Regional
Administrator will evaluate other
qualifications on an individual basis.
The owner or operator must provide
evidence of insurance for the entire
amount of required liability coverage as
specified in this section within 30 days
after notification of disallowance.
A or B, or both, even though the State
program does not include liability
coverage requirements, if (i) the State
PART ISJfc-STA'TE PROGRAM .liqBiasiBq submitted a draft application for the
Dcrti HDCuacMTC .. . - •"<-f"*sD">4 ..- • rr
~ -rtg-ifcp" --component or components of Phase II
interim authorization to EPA prior to
[insert date of publication in the Federal
Register], and (ii) the State commits in
its Memorandum of Agreement to adopt
State liability coverage requirements as
quickly as practicable, but in no case -
later than.the State's application for an
additional component of Phase II interim
authorization.
(3) Any State which receives interim
authorization for Components A or B or
both without liability coverage-
requirements, pursuant to paragraph
(a)(2) of this section, may not receive an
REQUIREMENTS,
1. The authority citation for Part 123
reads as follows:
Authority: Resource Conservation and
Recovery Act, r s amended, 42 U.S.C. 6901 et
seq.; Safe Drinking Water Act, 42 U.S.C. 300
if) et seq.; Clean Water Act, 33 U.S.C. 1251 et
seq.
2. In § 123.129, paragraph (a) is
amended by designating existing
paragraph (a) as (a](l) and adding new
paragraphs (a)(2J and (a)(3) to read as
follows:
§ 123.129 Additional program
requirements for interim authorization for
phase II.
(a)(-t) * * *
(2) The Administrator may authorize a
State program for Phase II Components
additional component of Phase II interim
authorization unless it has liability
coverage requirements in effect.
* * * * *
[FR Due. ili-10431 Filed 4-15-IU: K'45 am)
BILLING CODE 6560-50-M
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United States
Environmental Protection
Agency
Washington DC 20460
Official Business
Penalty for Private Use $300
Third-Class
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