Competitive environmental intelligence from www.estrategist.com on Underground Storage Tanks (UST’s) financial assurance
Margaret Catalano, of Allied Insurance Managers in Rochester Hills, Michigan and I were strategizing on the current status of the financial assurance bond market for UST’s in the state of Michigan for one of her clients. (Note: I say the state of Michigan because the responses we received from the surety markets were based upon the attached State of Michigan form R 29.2163d Surety bond, Rule 63.d Section 280.98. You should compare form R 29.2163d Surety bond, Rule 63.d Section 280.98 with the appropriate UST financial assurance form in your state. Over the years, I have found state’s have very similar environmental laws and regulations.)
Disclaimer: To keep the legal community happy, I submit the following: The response back from each surety market is based in large part upon the financial strength of the insured and the specific bond wording. Surety responses will vary from client to client and state to state.
Several bond markets gave us the following response: We can’t write on this bond form. In our view the liability is stacking each year which means that even though the bond starts out as $1 million it becomes $2 million in the second year and so on. This type of obligation is excluded from current reinsurance. Sorry but we cannot provide any relief.
One surety market offered the following but said it is subject to review of the bond form we supplied. The terms were: Bond amount not to exceed $1,000,000. Annual Premium rate of 3% of the bond amount, personal indemnification, collateral in the amount of 100% of the bond issued, etc..
environmental Strategist, between the lines: It’s critical to understand that a regulated UST by federal law is required to have financial assurance. This then raises the question, what is the definition of a UST? In basic terms, a tank is considered underground if 10% or more of its volume including associated piping is underground, you have a UST.
Over my years as an environmental Strategist (eS) performing environmental Risk Assessments (eRA), I have visited to many facilities to count, that you would swear a tank was an above ground tank because you could see the entire storage contents of the tank. But, because the piping associated with the tank ran a ¼ of a mile to the production line where the tank contents were being used in a manufacturing process, more than 10% of the tanks volume was underground and by federal law, the tank needed to have financial assurance.
Not meeting financial assurance can lead to the shut down of the tank system, which generally creates a business interruption, along with fines and penalties. Trust me when I tell you, this is not a positive for public relations when the press makes the general public aware of the fines and penalties. Making sure your clients are in compliance with their tanks is just one more reason you are indispensable.
The intentions of the federal government with financial assurance was to try to establish a system that if there is a release from a regulated UST there would be monies available to pay for the liability created with regards to bodily injury and property damage.
Financial assurance is obviously better than what was in place before, which was nothing. An owner/operator of a regulated UST can meet financial assurance in one of four ways. You can self insure, offer a letter of credit, post a bond or buy UST insurance. Due to associated costs and financial requirements the majority of tank owners/operators purchase UST insurance.
In the development and execution of an environmental Management Strategy (eMS), the goal is to do better today than yesterday and do better tomorrow than we are today. Please use this competitive environmental intelligence to assist you in being indispensable to your client’s impacted by UST financial assurance.
Thank you