When Congress amended Subtitle I of the Resource Conservation and Recovery Act in 1986, it directed the U.S. Environmental Protection Agency (EPA) to develop financial responsibility regulations for owners and operators of underground storage tanks (USTs) storing petroleum.

EPA estimates that there are about 1.2 million federally regulated petroleum USTs buried at over 500,000 sites nationwide. These sites are owned by marketers who sell gasoline to the public (such as service stations and convenience stores) and nonmarketers who use USTs solely for their own needs (such as fleet service operators and local governments).

Many of these USTs have released or will release petroleum into the environment through spills, overfills, or failures in the tank and piping system. EPA estimates that the total number of confirmed releases could reach 400,000 in the next several years. After this peak, EPA expects fewer releases as owners of USTs comply with federal and state requirements for new USTs and upgrade older USTs with spill, overfill, and corrosion protection.

Cleaning up these leaks can be costly. Congress wanted owners and operators of USTs to demonstrate that they have the financial resources-through insurance or other means explained below-to pay for the costs of corrective action and third-party liability that can result from leaking USTs.

The financial responsibility requirements are designed to make sure that someone can pay the costs of cleaning up leaks and compensating third-parties for bodily injury and property damage caused by leaking USTs.

This report briefly describes federal financial responsibility requirements for underground storage tanks.

The financial responsibility requirements are found in the Code of Federal Regulations, 40 CAR Part 280.

It is particularly important that someone be prepared to pay cleanup costs so that cleanup activities can begin as quickly as possible. Without fast action at contaminated sites, contamination can spread and increase significantly the chance of damaging the environment and human health.

Complying with the financial responsibility requirements also protects you, as an owner or operator of USTs. If your UST leaks, you may be faced with high cleanup costs or with lawsuits brought by third parties. You will be able to pay these costs if you have met the financial responsibility requirements.

Also, if you cannot demonstrate financial responsibility by the compliance deadline that applies to your UST facility, you can be cited for violations and fined.

Either the owner or the operator of the UST must demonstrate financial responsibility, if the owner and operator are different individuals or firms. It is the responsibility of the owner and operator to decide which one will demonstrate financial responsibility.

Federal and state governments and their agencies that own USTs are not required to demonstrate financial responsibility. Local governments, however, must comply with the financial responsibility requirements.

An underground storage tank system (UST) is a tank and any underground piping connected to the tank that has at least 10 percent of its combined volume underground. The federal UST regulations for financial responsibility apply only to underground tanks and piping storing petroleum.

The financial responsibility requirements apply to all USTs holding petroleum, with the following exceptions. These tanks are NOT covered by the financial responsibility requirements:

• Farm and residential tanks of 1,100 gallons or less capacity holding motor fuel used for noncommercial purposes.
• Tanks storing heating oil used on the premises where it is stored.
• Tanks on or above the floor of underground areas, such as basements or tunnels.
• Septic tanks and systems for collecting storm water and wastewater.
• Flow-through process tanks.
• Tanks of 110 gallons or less capacity, and tanks holding a minimal concentration of petroleum.
• Emergency spill and overfill tanks.

Other storage sites not covered by the federal financial responsibility requirements (such as surface impoundments and field-constructed tanks) are identified in the Code of Federal Regulations, 40 CFR Part 280.

Both the amount of financial responsibility coverage you need and the date by which you need it are determined by the type of business you operate, the amount of throughput of your tank, and the number of tanks you have. On the next page you will find a table that displays five groups of UST owners and operators, compliance deadlines for each group, and required coverage amounts.

Basically, your financial responsibility amount falls into two types: per occurrence and annual aggregate.

• Per occurrence. 'Per occurrence' means the amount of money that must be available to pay the costs from one occurrence of a leaking UST. If your tank is used in petroleum production, refining or marketing (such as service stations and truck stops), you must be able to demonstrate that you have $1 million of per occurrence coverage. The per-occurrence amount may be less if your tanks are located at a facility NOT engaged in petroleum production, refining or marketing. In this case, if your facility has a monthly throughput of 10,000 gallons or less, you need $500,000 of per occurrence coverage.
• Annual aggregate. You must also have coverage for an annual aggregate amount. The annual aggregate amount is the total amount of financial responsibility that you must have to cover all leaks that might occur in one year. The amount of aggregate coverage that you need depends on the number of tanks that you own or operate: $1 million annual aggregate for 100 or fewer tanks; $2 million annual aggregate for more than 100 tanks.

 

There are several options for demonstrating financial responsibility (each option is described fully in the Code of Federal Regulations, 40 CFR Part 280):

• USE STATE FINANCIAL ASSURANCE FUNDS. Your state may pay for some cleanup and third-party liability costs.
• OBTAIN INSURANCE COVERAGE. Insurance may be available from a private insurer or a risk retention group (see page 7).
• OBTAIN A GUARANTEE. You may secure a guarantee for the coverage amount from another firm with whom you have a substantial business relationship. The provider of the guarantee has to pass one of the financial tests about to be described.
• OBTAIN A SURETY BOND. A surety bond is a guarantee by a surety company that it will meet your financial responsibility obligations.
• OBTAIN A LETTER OF CREDIT. A letter of credit is a contract involving you, an issuer (usually a bank), and a third party (such as the implementing agency) that obligates the issuer to help you demonstrate your financial responsibility.
• PASS A FINANCIAL TEST. If your firm has a tangible net worth of at least $10 million, you can prove your financial responsibility by passing one of the two financial tests described on page 9.
• SET UP A TRUST FUND. You may set up a fully-funded trust fund administered by a third party to demonstrate financial responsibility.
• USE OTHER STATE METHODS. You may also use any additional methods of coverage approved by your state.

You may also use a combination of methods to demonstrate financial responsibility. The methods you choose must cover all the costs for which you are responsible (both corrective action and third-party liability) and add up to the amount of coverage you are required to demonstrate.

Local governments have four additional compliance methods tailored to their special characteristics: a bond rating test, a financial test, a guarantee, and a dedicated fund (all fully described in 40 CFR Part 280).

Most states have established programs that can help pay for cleanup and third-party liability costs resulting from leaking petroleum USTs. Owners and operators of USTs may use these state financial assurance funds to demonstrate financial responsibility.

Many state funds, however, pay only part of the cleanup costs or require that you pay a deductible amount. Some state funds do not pay for third-party liability costs. State assurance funds often have eligibility requirements, such as proof that the UST facility is in compliance with requirements for leak detection and recordkeeping.

You should contact your state agency to determine if the state has a fund that you may use to demonstrate financial responsibility. Find out what the state will pay for and what additional amount of financial responsibility, if any, you must obtain. See the list of state UST/LUST contacts discussed later. (LUST means 'leaking underground storage tanks.')

To make sure your insurance policy meets the financial responsibility requirements, have your insurer fill out one of the two following forms. If your UST insurance coverage is an expansion of a policy you already have, your insurer should give you an 'Endorsement' document that completes and reproduces the model form shown on page 10. If you get a new policy, your insurer should give you a 'Certificate of Insurance' illustrated later. Keep the completed form in your records.

You should be aware that insurers may require you to meet certain conditions for coverage. For example, your insurer may require you to test your tank for tightness or make improvements in your tank system, such as adding corrosion protection.

You may also be able to get insurance coverage through a risk retention group. A risk retention group is an insurance company formed by businesses or individuals with similar risks to provide insurance coverage for those risks.

If you belong to a trade association, it may be able to provide you with information about insurers and risk retention groups that cover USTs.

Your financial responsibility method must specify that the provider may cancel your coverage only after sending you advanced written notice. Insurance, risk retention group, and state fund coverage can be canceled only 60 days after you receive the cancellation notice. Guarantees, surety bonds, and letters of credit can be canceled 120 days after you receive the cancellation notice. You must find replacement coverage within 60 days after you receive the notice of cancellation. If you cannot get replacement coverage, you must notify your implementing agency.

You must keep at your UST site or your place of business the following records of financial responsibility coverage:

• A current 'Certification of Financial Responsibility.'
• Any additional documentation that shows your financial responsibility method is valid and provides details on the method's coverage, such as signed copies of official letters, policies, and state fund agreements.

Keep these records until your UST site is properly closed.

Keeping clear records makes good business sense. If asked by UST inspectors or regulatory officials to demonstrate your financial responsibility, you can use these records to demonstrate quickly your compliance with the financial responsibility requirements.

Many states require you to file copies of your financial responsibility records with the state agency, so check with your state to see what you need to do. You do not need to report financial responsibility records to the federal EPA unless you have been requested to do so.

• Your firm must have a tangible net worth of at least $10 million.
• Your firm must have a tangible net worth of a least 10 times the amount of aggregate coverage that you are required to demonstrate plus any other liability coverage for which your firm is using the test to demonstrate financial responsibility to EPA.
• Your firm must file the firm's annual financial statements with the Securities and Exchange Commission (SEC), or annually report the firm's tangible net worth to Dun and Bradstreet and receive a rating of 4A or 5A. Utilities may file financial statements with the Energy Information Administration, or the Rural Electrification Administration instead of the SEC.
• Your firm must have audited financial statements that do not include an adverse auditor's opinion or disclaimer of opinion.
• Your firm must have a tangible net worth of at least $10 million.
• Your firm must have a tangible net worth of at least six times the amount of aggregate coverage that you are required to demonstrate; and
• Have U.S. assets that are at least 90% of total assets or at least six times the required aggregate amount; and
• Have net working capital at least 6 times the required aggregate amount, or a bond rating AAA, AA, A, or BBB from Standard and Poor's, or Aaa, Aa, A, or Baa from Moody's.
• Your firm must have audited financial statements that do not include an adverse auditor's opinion or disclaimer of opinion.

 

Name: [name of each covered location]

Address: [address of each covered locationl

Policy Number:

Period of Coverage [current policy period]:

Name of [Insurer or Risk Retention Group]:

Address of [Insurer or Risk Retention Groupl:

Name of Insured:

Address of Insured:

1. This endorsement certifies that the policy to which the endorsement is attached provides liability insurance covering the following underground storage tank(s):

[List the number of tanks at each facility and the name(s) and address(es) of the facility(ies) where the tanks are located. If more than one instrument is used to assure different tanks at any one facility, for each tank covered by this instrument, list the tank identification number provided in the notification submitted pursuant to 40 CFR 280.22, or the corresponding state requirement, and the name and address of the facility.]

for [insert: 'taking connective action' and/or 'compensating third parties for bodily injury and property damage caused by' either 'sudden accidental releases' or 'nonsudden accidental releases' or 'accidental release'; in accordance with and subject to the limits of liability, exdusions, conditions, and other terms of the policy; if coverage is different for different tanks or locations, indicate the type of coverage applicable to eadh tank or location] arising from operating the underground storage tank(s) identified above.

The limits of liability are [insert the dollar amount of the 'per occurrence' and 'annual aggregate' limits of the Insurer's or Group's liability; if the amount of coverage is different for different types of coverage or for different underground storage tanks or locations, indicate the amount of coverage for each type of coverage and/or for each underground storage tank or location], exdusive of legal defense costs, whidh are subject to a separate limit under the policy. This coverage is provided under [policy number]. The effective date of said policy is [date].

2. The insurance afforded with respect to such occurrences is subject to all of the terms and conditions of the policy; provided, however, that any provisions inconsistent with subsections (a) through (e) of this Paragraph 2 are hereby amended to conform with subsection (a) through (e):