FINAL BILL REPORT

 

 

                                   2SHB 1180

 

 

                                  C 383 L 89

 

 

BYHouse Committee on Financial Institutions & Insurance (originally sponsored by Representatives Ferguson, Dellwo, Beck, Rust, Wang, Winsley, Van Luven, Nelson, Betrozoff, Chandler, Crane, Bowman, Moyer, Sayan, Spanel, Zellinsky, Dorn, R. King, Pruitt, G. Fisher, Valle, Hine, May, Jones, Walk, K. Wilson, O'Brien, Locke, Brekke, Phillips, Rasmussen, Inslee, Rector, Cooper, Miller, Brumsickle and Ebersole)

 

 

Insuring liability for leaks from underground oil storage tanks.

 

 

House Committe on Financial Institutions & Insurance

 

 

Rereferred House Committee on Revenue

 

 

Senate Committee on Financial Institutions & Insurance and Committee on Ways & Means

 

 

                              SYNOPSIS AS ENACTED

 

BACKGROUND:

 

In 1986, Congress directed the Environmental Protection Agency (EPA) to adopt regulations requiring owners or operators of underground petroleum storage tanks to maintain "financial responsibility" for damages caused by leaks from these tanks. The agency's proposed regulations took effect January 24, 1989.

 

Financial responsibility is defined in federal law as the ability to pay for "taking corrective action and compensating third parties for bodily injury and property damage caused by sudden and non-sudden accidental releases from operating an underground storage tank." In other words, owners or operators of underground storage tanks must demonstrate that they have a ready source of funds to pay for cleaning up any pollution whether the pollution was caused by a slow gradual leak or by one big break in the tank. Owners or operators must also be able to pay other persons who were physically hurt or whose property was damaged by a leak. The EPA was authorized to set the amount of financial responsibility.

 

The final EPA regulations established financial responsibility limits that are substantially less than the agency originally proposed.  The maximum amount required is $1 million per pollution incident with a $2 million aggregate limit per year.

 

Compliance with the financial responsibility limits by owners and operators of underground petroleum storage tanks are phased in according to a schedule based upon the number of tanks an owner or operator uses.  All owners and operators must have coverage by October 26, 1990.  Methods of satisfying the financial responsibility requirements include purchasing insurance, self-insuring, and participating in a state financial responsibility program.

 

For many owners and operators, especially small owners and operators, purchasing insurance will be the only practical alternative.  However, insurance is expensive and difficult to obtain.  Although national and regional risk retention groups are being formed to provide coverage, it is not clear whether these groups will limit their memberships.  Some affluent owners and operators are able to support their own in-house financial responsibility mechanism. Recognizing these compliance problems, some states have created programs addressing financial responsibility needs of owners and operators of underground petroleum storage tanks.

 

In 1988, the Legislature created the Joint Select Committee on Underground Storage Tanks to explore methods of assisting owners and operators to comply with the EPA financial responsibility regulations.  During the legislative interim, the committee developed a proposed state reinsurance program designed to attract private pollution insurers to Washington. The committee recommended creation of a state pollution reinsurance program.

 

SUMMARY:

 

An independent state agency is created to provide discounted reinsurance to an insurance company or risk retention group that has been selected by the agency administrator to sell pollution insurance to owners and operators of underground petroleum storage tanks.

 

The reinsurance program administrator is given broad authority to design and price reinsurance and insurance coverage that will assist owners and operators in meeting the EPA financial responsibility regulations. An advisory group composed of affected owners and operators and insurance professionals is created to assist the administrator in developing and implementing the program. The state Department of Ecology must be consulted on coverage issues affecting cleanup of pollution. In addition, the administrator must periodically report to the Legislature on the progress, finances, and operation of the program.

 

The program may not provide coverage in excess of $1 million per occurrence and $2 million annual aggregate. Deductibles, coverage prices, reinsurance contract terms, underwriting standards, and coverage limitations will be subject to negotiation with an insurer. The program is not required to accept every owner and operator, nor is the program required to heavily subsidize the premiums due from owners and operators. In addition, coverage must be priced to reflect the risks of each owner and operator. In other words, owners and operators who employ state of the art technology in preventing pollution will pay less than owners and operators who employ older, less effective methods to prevent pollution.

 

Owners and operators who are denied coverage by the insurer may appeal to the program administrator for review of the coverage denial.

 

A petroleum products tax of 0.50 percent is imposed on the first possession of any petroleum product in the state.  The tax is applied to the wholesale value of the petroleum product.  Petroleum products that are exported for use or sale outside of the state as fuel, and that are packaged for sale to ultimate consumers, are exempt from taxation.  Proceeds from the tax are deposited into the pollution liability reinsurance program trust account to fund the reinsurance program.  Collection of the revenue must cease whenever the account balance exceeds $15 million and collection may resume when the balance drops below $7.5 million.

 

The reinsurance program administrator is directed to report to the Legislature by January 1, 1990, on the estimated costs of implementing the reinsurance program and on necessary adjustments to the tax rate.  The administrator may not enter into a contract binding the state to provide pollution liability insurance or reinsurance until authorized by the Legislature.

 

 

VOTES ON FINAL PASSAGE:

 

      House 94   0

      Senate    46     0

      House             (House refused to concur)

      Senate    45     0 (Senate amended)

      House 97   0 (House concurred)

 

EFFECTIVE:May 13, 1989

            July 1, 1989 (Sections 14 - 19)