Preventing or Repairing Environmental Damage
In 1986 the US Environmental Protection Agency (EPA) began developing a program to protect the environment from leaking underground storage tanks (UST), and put into place financial responsibility regulations for owners and operators of facilities storing petroleum. The EPA estimates that there are over a million underground storage tanks that are owned nationwide and that sell gasoline to the public; thus the need for financial responsibility to ensure cleanup of spills and leaks, and to provide compensation for third-party damages.
Since cleaning up leaks may be costly, the program started a financial responsibility requirement to ensure that owner/operators clean up spills and overfills, repair or replace leaking corrosive tanks and lines, and provide compensation for third parties if any bodily injury or property damage occurs. This not only protects the environment, but it also protects the owners from costly cleanups or lawsuits by third-party damages.
Convenience stores, gas stations and local governments that utilize underground tanks must comply with the financial responsibility requirements. The definition of an underground storage tank is defined is any “tank that has at least 10% of its combined volume underground,” has piping connected to it, and stores petroleum. Farms and residential tanks, federal and state government tanks along with a few other exceptions are not required to provide proof of financial responsibility.
There are several types of financial responsibility that can be used to satisfy the requirement. These include:
- A Surety Bond: A guarantee that the owner/operator will perform the tasks required in the bond.
- Obtain insurance coverage: A policy obtained through an insurance company or risk retention group.
- Obtain a letter of credit: This is a contract issued (usually) by a bank that guarantees payments for specific conditions.
- Obtain a guarantee: Another firm guarantees the coverage amount and can pass the “financial test.”
- Pass the financial test: Owner/operators can provide proof of a tangible net worth of at least $10 million.
- Set up a trust fund: That is administered by a third party.
- Use of the state financial assurance funds: Some states have funds retained to assist with third-party liability and cleanups of spills or leaking tanks.
- Other state financial responsibility options: This is dependent on the state in which the underground storage tank is located and the rules that are applicable for its use.
- Local governments have additional compliance requirements (see 40 CFR Part 280).
The amount of financial responsibility that is required varies by state and whether there are assurance funds available. States such as Alabama, Alaska, Arizona, Arkansas, California, the District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Maine, Maryland, Massachusetts, Michigan, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, Oregon, South Carolina, Tennessee, Texas, Vermont, Virginia, Washington, and Wisconsin all have some form of the financial responsibility requirement.
Owner/operators that choose to obtain a surety bond (in some states it is referred to as a performance bond) can apply for the bond they need with SuretyGroup.com. The bond amount may be determined by the number of gallons of petroleum that pass through the tank on an annual basis, or other conditions may apply based on the state requirements. The premium you pay for the bond will be based on the bond amount the state is requiring, and the owner’s credit. For bond amounts over $50,000, financial statements will be needed.
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