ijNITED~STATE5 ENVIRONMENTAL PROTECTION AGENCY I-'NJTONOC APR i L .. - MEMORANDUM SUBJECT: 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 INTRODUCTION 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. BACKGROUND 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 ------- -2- 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. GUIDANCE 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 policy. 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 ------- -3- 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 applications? 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. ------- -4- 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 ------- ENVIRONMENTAL IMPAIRMENT LIABILITY INSURANCE (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 Manager (212) 770-7186 or 3699 Wilshire Blvd. Los Angeles, California 90010 Paul Kinni Manager (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 3720 (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 Secretary (203) 277-2867 must have other insurance coverage with company 4/09/85 ------- Name & Address Contact 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 ------- POLLUTION LIABILITY INSURANCE ASSOCIATION—MEMBER COMPANIES 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 Chubb 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 4/09/85 ------- |