ijNITED~STATE5 ENVIRONMENTAL PROTECTION AGENCY
I-'NJTONOC
APR i L .. -
MEMORANDUM
SUBJECT:
forcement Guidance for a Constrained Insurance Market
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FROM: jck W. M'cGraw
Acting Assistant Administrator
Office of Solid Waste and Emergency Response
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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
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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
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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.
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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
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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
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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
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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
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