Financial Assurance (FA) regulations for underground storage tank owners/operators were first put into place with the 1986 amending of Subtitle I of the Resource Conservation and Recovery Act (RCRA). These regulations require owners/operators to prove they have the financial resources available to clean up any pollution condition that emanates from their tank(s), including 3rd party damages. While FA is generally used for underground storage tanks, some states also require it for aboveground tanks over a certain capacity at any one facility. The amount of FA required for each risk is based on the type of business, annual throughput and number of tanks at each facility.
There are several types of tanks and entities that are exempt from the FA requirement, including state and federal government, septic tanks, farm tanks of 1,100 gallons or less, along with a few others.
The following are FA options for tank owners/operators:
- Storage Tank Liability policy: Can be obtained through numerous private carriers and risk retention groups. State specific Certificates of Insurance are provided to be in full compliance. Some carriers will offer reduced limits to work with a State Tank Fund deductible. This is the only available option that offers actual Defense coverage in case of a suit and allows owners to free up funds they otherwise would need to set aside if using one of the other FA options.
- State Tank Fund: (Where EPA approved funds are available) This option works as a reimbursement program, not insurance coverage with a deducible to be met before fund access kicks in. Tanks must meet state compliance as far as leak detection, monitoring, and record keeping. Access to the funds differs from state to state―some offer automatic access to all registered owners and others require owners to apply and be approved to access the fund. All owners/operators pay annual fees (determined by each state) that help maintain the fund. Approved remediation work and rates are set by individual states, meaning some incurred expenses may not be reimbursed.
- Guarantee: Third party firm guarantees the owner/operator the financial backing and they are then the ones who must pass one of the EPA placed financial tests.
- Surety bond: Guarantee of financial backing from a surety company.
- Letter of credit: An insurer (usually a bank) and a 3rd party contract that obligates the insurer to help owners show FA.
- Trust Fund: Owner/operator supplies the funds and the trust is administered by a 3rd party.
- Pass a financial test: There are two acceptable tests per the EPA, with multiple factors but both require any firm to have a tangible net worth of at least $10 million.
An owner/operator may choose one of the options or a combination to meet the FA requirement. No matter the chosen option(s), the owner/operator must demonstrate annually to the state that they have the proper FA in place by either providing the Certificate of Insurance from their Storage Tank Liability Policy (some states also require a policy copy) or filing the required state FA documents.
For information on Storage Tank Liability, please feel free to contact us. Beacon Hill offers a variety of coverages for businesses with storage tanks, including full Site Pollution coverage, as well as insurance for above ground property and equipment at the location. From ASTs and above ground piping to canopies and dispensers, we can help.
This link will take you to the contact information for all State Funds: https://www.epa.gov/ust/state-financial-assurance-funds