UST Technical Compendium: Financial Responsibility
- Question 1: Please clarify the term "occurrence." How is "occurrence" to be applied to leaking underground storage tank (UST) sites?
[September 1990 letter from the State of Virginia via Wayne Naylor, Region III]
Answer: Insurance industry practice is to consider all contamination discovered during a single site investigation to be one occurrence, regardless of the number of tanks or piping which may be leaking. On the other hand, leaks discovered at different times from the same UST system as a result of unrelated investigations would be considered two occurrences.
[October 15, 1990 memorandum to Mr. Naylor (PDF) (23 pp, 402 K, About PDF)]
- Question 2: Can the American Red Cross use net assets instead of tangible net worth to comply with the financial responsibility self-insurance test? Also, the American Red Cross does not file its annual report with the Securities and Exchange Commission (SEC) or obtain a rating from Dun & Bradstreet. Can we use double audit opinions by Deloitte & Touche and the U.S. Army Audit Agency in lieu of the CPA opinion?
[October 4, 1990 letter from Christopher E. Mandel of the American Red Cross]
Answer: No, the Red Cross is unable to use the self insurance test because, as a non-profit, the financial statements are not developed according to Generally Accepted Accounting Principles which was assumed during development of the test. In addition, as required by Part 280 (b)(4)(i), the double audit would not ensure access by the implementing agency to the current financial statements in a format that allows for verification of compliance with the requirements of the financial self-test.
[Undated letter to Mr. Mandel (PDF) (23 pp, 402 K)]
- Question 3: Can New Jersey Transit, which is a public transit agency under State control, be classified as either a State Agency or a local governmental entity for purposes of the financial responsibility regulations?
[October 11, 1990 letter from Shirley DeLibero of New Jersey Transit]
Answer: New Jersey Transit does not qualify as a State agency under Part 280.90(c) because the debts of New Jersey Transit are not the debts of the State of New Jersey. New Jersey Transit qualifies as local government for purposes of the financial responsibility regulations: in the local government proposed rule 55 FR 24695 (June 18, 1990), the preamble mentions transit authorities as an example of special purpose local governments and suggests that this category includes districts created by State enactment 55 FR 24696).
[October 24, 1991 letter to Ms. DeLibero (PDF) (23 pp, 402 K)]
- Question 4: Please explain allowable limitations to on-site corrective action with regard to insurance policy form and content.
[January 11, 1991 letter from Craig Stanovich of the Braley and Wellington Insurance Agency Corp.]
Answer: As explained in 53 43322, 43348, on-site corrective action coverage is required in insurance policies which are to be used as mechanisms to demonstrate financial responsibility. Thus, coverage limited to "the existence of imminent and substantial danger to third required corrective action coverage. Exact wording as described in Part 280.97 is required in either an endorsement or a certificate of insurance.
[Jan 11, 1991 letter to Mr. Stanovich (PDF) (23 pp, 402 K)]
- Question 5: Please define corrective action in order to determine if insurance policies in West Virginia comply with the financial responsibility requirements.
[February 8, 1991 request for clarification from West Virginia via Region III]
Answer: EPA has never formally defined "corrective action" in our rules. However, Subpart F -- Release, Response and Corrective Action for UST Systems Containing Petroleum or Hazardous Substances -- is generally viewed as the corrective action section and explains required procedures.
[March 29, 1991 note to Mr. Naylor (PDF) (23 pp, 402 K)]
[March 29, 1991 letter to Ms. Ehlert (PDF) (23 pp, 402 K)]
- Question 6: Can Wyoming exclude releases under 25 gallons from its regulatory program and still receive State fund approval? With this 25 gallon exclusion, would Wyoming qualify as an approved State program?
[March 1991 request for clarification of Wyoming's Statute by Region VIII regarding the definition of "release."]
Answer: Wyoming's definition of "release" may be acceptable in the context of State fund approval because the requirement to respond immediately to releases less than 25 gallon is found in Subpart E of the UST rules - Release Reporting, Investigation and Confirmation. It can be reasonably argued that the State fund is not obligated to cover these activities because they are not required to be performed under Subpart F.
This "release" definition, however, is not acceptable with regard to State program approval because the Federal definition of release (Part 280.12) is identical to Wyoming's definition except for the 25 gallon exclusion in the stature. While reporting spills is not required, Subpart E of EPA's regulations requires spills of any size to be immediately contained and cleaned. Based on this discussion, we believe that Wyoming's definition of release would be less stringent than the Federal program allows.
[March 29, 1991 letter to Ms. Ehlert (PDF) (23 pp, 402 K)]
- Question 7: Please clarify the definitions of tangible net worth and net working capital. Also, are non-profit organizations subject to the EPA financial responsibility regulations?
[March 15, 1989 letter from Christopher J. Franki of the Insurance Buyer's Council, Inc.]
Answer: EPA defines tangible net worth as the tangible assets that remain after deducting liabilities; such assets do not include intangibles such as goodwill and rights to patents or royalties. The standard definition of working capital is current assets minus current liabilities. Unused borrowing capacity is not considered part of the standard definition of working capital.
The non-profit community service corporation that your firm represents is considered a non-marketer. If the non-profit organization can meet the criteria in the self-insurance test, they can use that mechanism to comply with the financial responsibility requirements. Otherwise, the other mechanisms could be used to demonstrate compliance such as a State fund or private insurance. The local government financial test is targeted to general purpose and special purpose local governments and may or may not apply to non-profit organizations.
[April 6, 1989 letter to Mr. Franki (PDF) (23 pp, 402 K)]
- Question 8: Please clarify the compliance date for non-marketers that do not report to Dun & Bradstreet. What does it mean to "report to Dun & Bradstreet?
[December 28, 1988 letter from Dean Ziegel of Rivkin, Radler, Dunne & Bayh]
Answer: According to Part 280.91(d), privately-held non-marketers owning USTs which do not report to SEC, D&B, etc. are considered to be in Category 4 for financial responsibility compliance purposes. A firm "reports" to Dun & Bradstreet if the firm provides information about the firm's net worth or other information that can be used to determine net worth, or if Dun & Bradstreet publishes a rating for the firm.
[April 6, 1989 letter to Mr. Ziegel (PDF) (23 pp, 402 K)]
- Question 9: Can Region VII release in excess of $2 million held in a fully funded trust fund that is partially funded with marketable securities? How should the marketable securities be valued?
[April 1, 1991 memo from Region VII regarding Fisca Oil Co.]
- Answer: The Federal financial responsibility regulations (Part 280.102) state that "if the value of the trust fund is greater than the required amount of coverage, the owner or operator may submit a written request to the Director of the implementing agency for release of the excess." Upon release of such funds, in the case of a fully funded trust fund that is in full or in part funded by marketable securities, those securities should be valued at the lower of cost or market value until such time as the loss or gain is realized.
[March 28, 1991 memorandum to Mr. McLaughlin (PDF) (23 pp, 402 K)]
[April 01, 1991 memorandum to Regional Program Managers (PDF) (23 pp, 402 K)]
- Question 10: Do voluntary tank removal and voluntary tank site investigation exclusions in UST insurance policies meet the federal financial responsibility (FR) requirements?
- Answer: No. Exclusions in insurance policies for payments for voluntary tank removals and voluntary tank site investigations do not meet the FR requirements. If a tank removal or tank site investigation reveals contamination from an UST release, the UST insurance policy must not exclude insurance coverage for the cleanup of the release or any third-party damages that may result. If such an exclusion is part of the insurance policy, the insurance policy does not meet the federal FR requirements of 40 CFR 280, Subpart H.
[August 3, 2018 memorandum (PDF) (23 pp, 402 K)]
- Question 11: Does an insurance policy with a self-insured retention meet the federal financial responsibility (FR) requirements?
- Answer: EPA has determined that an insurance policy with a self-insured retention may be only a partial financial responsibility mechanism. If the self-insured retention is applied to a claim made after the inception date, it does not fulfill the FR requirements of 40 CFR 280 on its own. Instead, an owner would have to use a combination of mechanisms to comply with FR requirements. An owner would have to show proof of financial responsibility for the amount of the self-insured retention.
If the self-insured retention is applied only to claims during the period prior to the inception date or back to the retroactive date, the policy fulfills the federal FR requirements since coverage is only required for the current policy period, though EPA strongly encourages owners use policies with retroactive dates.
[August 3, 2018 memorandum (PDF) (23 pp, 402 K)]
- Question 12: Does an underground storage tank (UST) insurance policy with loading and unloading exclusions or endorsements, or both, meet the federal financial responsibility (FR) requirements described in 40 CFR 280 Subpart H? (Added: May 2019)
- Answer: No. An insurance policy or other FR mechanism that does not cover releases from loading and unloading activities does not, on its own, meet the federal FR requirements. For owners or operators to meet the financial responsibility requirement in 40 CFR 280 Subpart H, the FR mechanisms they use must provide coverage for all types of releases owners or operators are responsible for reporting and cleaning up under 40 CFR Part 280.
40 CFR §280.93(a) requires owners and operators of petroleum underground storage tanks demonstrate financial responsibility for taking corrective action and for compensating third parties for bodily injury and property damage caused by accidental releases arising from the operation of petroleum underground storage tanks. It has always been EPA’s intent that financial responsibility mechanisms—for example, insurance policies, state funds, letters of credit, or surety bonds—described in 40 CFR 280 Subpart H cover all releases UST system owners or operators are liable for, including releases from loading and unloading activities.
For FR purposes, an accidental release as defined in 40 CFR §280.92 means “any sudden or nonsudden release of petroleum arising from operating an underground storage tank that results in a need for corrective action and/or compensation for bodily injury or property damage neither expected nor intended by the tank owner or operator.” There are two other definitions in the federal UST regulation that further clarify which releases must be covered. 40 CFR §280.12 defines a release as “any spilling, leaking, emitting, discharging, escaping, leaching or disposing from an UST into groundwater, surface water, or subsurface soils.” That same section defines aboveground release as “any release to the surface of the land or to surface water. This includes, but is not limited to, releases from the aboveground portion of an UST system and aboveground releases associated with overfills and transfer operations as the regulated substance moves to or from an UST system.” Consequently, any accidental aboveground release that an owner or operator is responsible for taking corrective action under 40 CFR 280 must be covered by the owner or operator’s FR mechanisms. These accidental aboveground releases could include releases from loading and unloading activities if they trigger the reporting and corrective action requirements under 40 CFR §280.53 Reporting and cleanup of spills and overfills.
All references cited by the questions and answers above can be found together in the following resource: