APR  i L .. -
            forcement Guidance for a Constrained  Insurance Market
FROM:     jck W. M'cGraw
          Acting Assistant Administrator
          Office of Solid Waste and Emergency Response
                           n   -  A   />
          Courtney M. Price ^-^-^ ^ ^  / -^—-
          Assistant Administrator
          Office of Enforcement and Compliance Monitoring

TO:       Enforcement Division Directors, Regions I-X
          Regional Counsels,  Regions I-X


     This guidance describes appropriate enforcement responses to
RCRA facilities facing a constrained insurance market.  It provides
for enforcement of RCRA's financial responsibility requirements,
while recognizing the practical problems that the regulated community
may have in securing appropriate liability coverage.  It requires
that a facility make a good faith effort to obtain insurance and
thoroughly document those efforts.  Unsubstantiated good faith
claims will result in appropriate enforcement actions; penalties
will be assessed when the facility fails to make a good faith
effort in accordance with specified criteria.  The enforcement
approach described is meant only as an interim measure until the
insurance problem is mitigated, and does not constitute a long
term solution to this problem. •. The Agency will be working with
both the Congress and the insurance industry to identify problem
areas and work toward a long term solution.   In the meantime,  the
following guidance should be used in dealing with the regulated
community.  This guidance will remain in effect until
November 8, 1985.


     In accordance with Part 265, Subpart H requirements,  approxi-
mately 4800 treatment, storage and disposal facilities are subject
to sudden liability requirements, and approximately 1000 surface


 impoundments,  land  treatment  and  landfill  facilities  are  subject  to
 nonsudden  liability insurance requirements.   There  are  approximately
 325  facilities  subject  to  nonsudden  liability requirements,  and
 approximately  14  surface  impoundments,  land  disposal  and  landfills
 subject  to  nonsudden  requirements  under  Part  264, Subpart  H.   The
 requirements for  nonsudden  liability  insurance have been  phased  in
 over  time on the  basis  of owner and operator  size,  the  smallest
 owners and  operators  (those with  sales or  revenues  of five million
 dollars  or  less)  needing to obtain nonsudden  liability  insurance
 by January  15,  1985 (40 CFR 265.147(b),  264.147(b)).

      Due to a depressed market  (decrease in  the availability of
 reinsurance and insurance)  for  environmental  impairment liability
 (EIL) insurance,  owners and operators may  experience difficulty
 in meeting  regulatory requirements for obtaining nonsudden coverage.
 Moreover, because of  some court decisions  broadening sudden coverage
 under comprehensive general liability (CGL) policies, some insurance
 companies are eliminating sudden coverage  from such policies.
 Therefore,  some owners  and operators may also have difficulty
 meeting  the requirement for sudden liability coverage (40 CFR
 265.147(a)).  Major monetary  losses suffered  by insurance companies
 on EIL and  CGL policies from  non-RCRA events have also resulted in
 the reduction of  the  reinsurance market.

     The situation  for  land disposal facilities is further complicated
 by the recent statutory amendment (§3005(e))  requiring facilities
 to certify  compliance with ground-water monitoring and financial
 responsibility requirements,  and submit a  Part B application by
 November 8, 1985, or  lose interim status.  Without havinq liability
 coverage, or being  on a compliance schedule to continue efforts to
 obtain such coverage, these firms will be  unable to certify compliance
 with all financial  responsibility requirements.  We are now in the
 process of  decidinq how to address the loss of interim status issue
 and will advise the Regions of our decision soon.


     This memorandum provides an Agency enforcement response guidance
 for:   (1) dealing with the immediate problem of firms (owners and
 operators)  who have five million dollars or less in sales and
 revenues and are subject to the January 15, 1985 compliance deadline
 for nonsudden liability insurance; and (2)  those other firms facinq
 the shrinking insurance market who have had either a nonsudden
 policy cancelled or have had sudden coverage removed from their CGL

     The underlying principle of this guidance is  that enforcement
 action against violators of the insurance  requirements must be
 taken within the context of current RCRA inspection and  enforcement
 priorities, including Reauthorization requirements.   As  Agency
 enforcement guidance directs,  a comprehensive enforcement  approach
should be undertaken at a facility specific level,  considering
whether  or  not the facility owner/operator  intends  to seek a permit


 and whether or not the facility is in serious noncompliance with
 applicable Part 265 standards and/or poses a siqnificant risk to
 the environment.*

      The following question must be asked to determine what action
 to take when dealing with the liability insurance issue:

      Did the firm make a  "good faith" effort to obtain/renew
      i nsurance?

 Among the factors that should be reviewed in definina a  qood faith
 effort  are:

        Did the firm submit  a complete application to insurance
        company(ies)  in a  timely  fashion,  allowina for the insurance
        firm  to process and  issue the  policy?

      0  Did the firm submit  its  application to "known" supplier(s)
        of EIL  insurance?

      0  Can the firm provide  the  Agency  official  with  documentation
        of  attempts  to  gain  insurance  with  known  insurers?  Has  the
        firm  documented  (1)  the  contacts  it made?  and  (2)  the reasons
        given by  the  insurance  companies  for  denying or delaying  the

 The owner/operator  needs  to  demonstrate  its  good  faith effort
 through  careful  and  thorough documentation of each step  it  has
 taken to  seek  insurance.  The  burden  of proof is  on the  owner/
 operator;  unsubstantiated good faith  claims  will  merit enforcement
 action  as  described on  the following  page.

     With  regard  to timeliness,  existing information  indicates that
 in a healthy insurance market, insurance firms need at least  three
 months  to  process and  issue straightforward  applications, and at
 least nine months to review more complex applications, e.g.,  for
 applications covering multiple facilities.   Thus, when reviewing
 good faith claims of an owner/operator subject to the January 15,
 1985 deadline, the enforcement official should check  to see  whether
 the application was filed  no later than three months  prior  to that
 date or October 15, 1984.

     The Agency official should evaluate carefully a  firms's claim
 that it was unable to locate an insurer.   For example, the  firm
 snould have approached/applied to a "known" supplier(s) of  EIL
 insurance.** Failure to apply to a "known" insurer will act as an
*The RCRA Implementation Plan and Enforcement Response Policy discuss
program goals and priorities.
**A list of currently known suppliers of liability insurance is
attached.  Also,  the guidance manual, Liability Coverage;  Reguirenents
lor Owners and Operators of Hazardous Waste Treatment, Storage"and~	
Disposal Facilities, lists  major  national  trade associations that
can supply general  information about the insurance industry.

 indicator that the owner/operator did not make a good faith attempt
 to find insurance.

      The determination of whether the application is of sufficient
 quality to be considered "good faith" is a difficult question.  One
 means by which an owner/operator could demonstrate good faith is to
 show the inspector documentation that she or he had"a risk assessment
 prepared,  and submitted  that assessment to the insurance company
 along with the application.   However, it should be noted that not
 preparing  such a.  risk  assessment need not indicate "bad faith"  as
 the preparation of  such  an assessment is not an application
 requirement  for all  insurance companies.

      The penalization  of  facilities  adjudged to be making  a good
 faith effort  (including  permitted  facilities)  to obtain insurance
 is generally  not  advised.   However,  there may  be  cases,  e.g.,  where
 the owner  or  operator  applied to only one insurer,  or where the
 insurance  application  was  incomplete,  where  a  penalty may  be
 warranted.                                               J

      Failure  to demonstrate  that  a good  faith  effort  was made  to
 obtain  insurance  is a  serious  offense,  which will  result in a
 compliance order  and penalty  being issued  (See  RCRA  Penalty Policy)
 II  f  5«a°J  5y iS 3lSO in serious violation of other  applicable   '
 fa*   265 standards, the Region may need  to consider  closure for
 this  faci 11ty.

 ch  ^IhiS q"idance is  an interim measure  until November 8,  1985.
 Should you  have any questions regarding  this guidance  please call

 P"  JH  e?j;akai^?'2034) °f  the RCRA ^'cement Division  or
 Pam Sbar (475-8173) of OECM.  Any new information regarding  the
 liability insurance market or solutions proposed by the Agency,
the Congress, or insurance firms will be conveyed to you promptly

                         (known to USEPA)
Name & Address

American Home/National Union
  Insurance Companies
American International Group
70 Pine Street
New York, New York  10270
                                       Contac t

                                       Mark Vuono
                                       (212) 770-7186
3699 Wilshire Blvd.
Los Angeles, California  90010
                                       Paul Kinni
                                       (213) 480-3400
Swett & Crawford Management
  Co.,  Ltd.
88 Pine Street
16th Floor
New York, New York   10005
                                       Dominick Anzalone
                                       (212) 809-4277
                                       [send submissions to local
                                       field office]
Pollution Liability
  Insurance Association
One East Wacker Drive, Suite
Chicago, Illinois  60601
                                       (312) 467-0003
[Offering coverage on the Insurance Services Office (ISO) form
are 42 member companies*; contact individual PLIA members—see
attached list]
The Hartford Insurance Group*
Hartford Plaza
Hartford, Connecticut  06115
                                       David sterling
                                       Secretary, Commercial Casualty
                                         Underwriting Group
                                       (203) 547-4166
                                       [send submission to local
                                       field office]
The Travelers Insurance Co.*
One Tower Square
Hartford, Connecticut  06115
                                       Thomas Jackson
                                       (203)  277-2867
  must have other insurance coverage  with company

Name & Address
Shand, Morahan & Co., inc. t
Shand Morahan Plaza
Evanston, Illinois   60291
Paul Springman or
Charles North
Special Risks Underwriting
  Depar tment
(312) 866-2800
Stewart Smith Mid America, Inc. t
125 South Wacker Drive
Chicago, Illinois  60606
John J. Metelski
Vice President
(312) 236-7333
The Home Insurance Co. t
59 Maiden Lane
New York, New York  10038
Donald Weekes
Manager, EIL Underwriting
(212)  530-6678
[send  submissions to local
field  office]
T appears to no longer write EIL coverage


AID Insurance Company (Mutual)
American Mutual Liability Insurance Company
American Mutual Reinsurance Company
Amensure Insurance Company
Austin Mutual Insurance Company
Auto-Owners Insurance Company
Bituminous Insurance Companies
Central Mutual Insurance Company
Employers Casualty Company
Employers Mutual Casualty Company
Federal Insurance Company
Federated Rural Electric Insurance Corporation
Hanseco Insurance Company
Harleysville Mutual  Insurance Company
Hawkeye-Security Insurance Company
Iowa National Mutual  Insurance Company
Liberty Mutual Insurance Company
Lincoln National Reinsurance  Company
Lumber Mutual  Insurance Company
Lumbermens Mutual Casualty Company
Millers National -  Illinois Group
MSI  Insurance Company
Nationwide Mutual  Insurance Company
Northbrook Property  and Casualty  Insurance Company
Paxton National  Insurance  Company
Pennsylvania Manufacturers' Association  Insurance Company
Pennsylvania National  Mutual  Casualty  Insurance  Company
Prudential  Reinsurance Company
Ranger  Insurance Company
The  Reinsurance  Corporation of  New York
Republic  Western  insurance Company
Selected  Risks  Insurance  Company
Sentry  Insurance A Mutual  Company
Shelby  Mutual  Insurance Company
South  Carolina insurance  Company
United  Fire  &  Casualty Company
United  States  Fire Insurance  Company
Utica  National insurance  Group
West Bend Mutual Insurance Company
The  Western Insurance Companies
 Zurich-American Insurance Companies