SENATE BILL REPORT
SB 5280
BYSenators Kreidler, McCaslin, Gaspard, Newhouse and Vognild
Insuring liability for leaks from underground oil storage tanks.
Senate Committee on Financial Institutions & Insurance
Senate Hearing Date(s):February 7, 1989
Senate Staff:Walt Corneille (786-7416)
AS OF FEBRUARY 8, 1989
BACKGROUND:
In 1986 Congress passed the Superfund Amendments and Reauthorization Act (SARA). The SARA directs the Environmental Protection Agency (EPA) to adopt regulations requiring owners or operators of underground storage tanks (UST) to maintain financial responsibility for damages caused by leaks from these tanks. On October 26, 1988, the EPA published its final regulations relating to the financial responsibility requirements for owners and operators of USTs containing petroleum. The effective date of the regulation was January 24, 1989.
A UST is defined as a tank, including the pipes connected to it, in which the volume of the tank and pipes is 10 percent or more beneath the surface of the ground. Exclusions from the definition include a farm or residential tank of 1,100 gallons or less and tanks used for storing heating oil.
The EPA regulation requires that marketers and large volume users maintain financial responsibility in the amount of $1 million per occurrence. Non-marketers of petroleum products, including local governments, must have financial responsibility in the amount of $500,000 per occurrence. The annual aggregate amount of financial responsibility is specified as $1 million for owners and operators of USTs that have 1 to 100 tanks. The annual aggregate amount is $2 million for owners and operators of USTs with more than 100 tanks. Compliance dates are specified based on the number of tanks and the net worth of the owner and operator.
Proof of financial responsibility as specified by EPA regulations may be met by having insurance, qualifying as self-insured, or participating in a state program. The state program must provide assurances that are at least equivalent to those specified by the EPA. The EPA's main concern in evaluating a state program is that funds will be available for corrective action and reimbursement of third parties damaged by a spill from a UST. Insurance for underground storage tanks has become more difficult to maintain and, in some cases, very costly.
In 1988, the Washington State Legislature enacted ESSB 6741 establishing the Joint Select Committee on Storage Tanks to make recommendations on a number of issues including financial responsibility. The committee was to report on the advisability and methods for establishing a state program which insures compliance with the federal requirements and which limits the state's liability.
Senate Bill 5280 is the result of the findings of the Joint Select Committee on Storage Tanks.
SUMMARY:
The Washington pollution and liability reinsurance program is created as an independent state agency headed by an administrator appointed by the Governor. The administrator is given broad rule-making authority to carry out the various aspects of the pollution liability reinsurance program. The administrator must appoint a technical advisory committee including representatives of the petroleum market industry, owners and operators of underground storage tanks (USTs) and insurance professionals. The administrator may appoint other technical or advisory committees as deemed necessary.
The administrator must select a primary insurance company to provide liability insurance coverage to UST owner/operators. A state fund is established to provide reinsurance coverage to the primary insurance company. The reinsurance provided must be "excess of loss coverage" wherein the reinsurance portion will not come into effect until the primary insurance carrier has paid its portion of the claim and collected any applicable deductible from the UST owner/operator. The mechanism to provide for deposits to the fund is not a part of this bill.
The administrator must solicit bids from insurers and select the primary insurer. The primary insurer must provide liability coverage to owners and operators of USTs for payment of claims to third parties for property damage and personal injury as well as for the cost of cleanup operations. Coverage provided for losses incurred by owner/operators of USTs must not exceed $1 million per occurrence and $2 million annual aggregate for each policy issued by the primary insurer. Criteria for evaluation of the insurers' bids are specified. The minimum coverage that must be provided is $500,000 per occurrence and $1 million annual aggregate.
The primary insurer selected must provide coverage for the cost of defending claims and must be responsible for collecting a deductible amount from the insured in the event a covered claim exceeds the specified deductible. The primary insurer must require that an applicant for insurance coverage be in compliance with statutes, ordinances, rules, and regulations identified by the administrator. The insurer also must require that the insurance applicant exercise adequate risk management. The insurer may exclude coverage for losses arising before the effective date of coverage and may exclude coverage for bodily injury, property damage and corrective action. The insurer is required to use a variable rate reflecting the tank type, age and other factors.
If a preexisting release has been identified, an owner/operator of a UST may still obtain coverage so long as it has a plan for proceeding with corrective action. If the owner/operator files a claim with the insurer, it has the burden of proving that the claim is not related to a preexisting release.
The pollution liability reinsurance program is exempt from the provisions of Title 48 RCW, the insurance code, except for sections pertaining to examinations, annual reports, assets and liabilities, investments, deceptive or false acts, and risk retention. The insurer selected by the administrator may not participate in the Washington Insurance Guarantee Association and the association is not liable for any coverage provided to owners/operators of USTs in connection with the program.
The chapter will expire June 1, 1995.
Appropriation: none
Revenue: none
Fiscal Note: available
Effective Date:The bill contains an emergency clause and takes effect immediately.