HOUSE BILL REPORT

HB 1180

BYRepresentatives 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

Majority Report:  The substitute bill be substituted therefor and the substitute bill do pass.  (15)

      Signed by Representatives Dellwo, Chair; Zellinsky, Vice Chair; Chandler, Ranking Republican Member; Anderson, Baugher, Beck, Crane, Day, Dorn, Inslee, P. King, Nutley, Schmidt, K. Wilson and Winsley.

House Staff:John Conniff (768-7119)

Rereferred House Committee on Revenue

Majority Report:  The second substitute bill be substituted therefor and the second substitute bill do pass.  (15)

      Signed by Representatives Wang, Chair; Pruitt, Vice Chair; Holland, Ranking Republican Member; Horn, Assistant Ranking Republican Member; Appelwick, Basich, Brumsickle, Fraser, Fuhrman, Grant, Haugen, Morris, Phillips, Rust and H. Sommers.

House Staff:      Robin Appelford and Bob Longman (786-7136)

AS REPORTED BY COMMITTEE ON REVENUE MARCH 3, 1989

BACKGROUND:

In 1986, Congress directed the Environmental Protection Agency (EPA) to adopt regulations requiring owners or operators of underground 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 amount of financial responsibility was set by the EPA.

The EPA regulations established financial responsibility limits which are substantially less than 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.  An owner or operator may satisfy the financial responsibility requirements in many ways that include purchasing insurance, self-insuring, and participating in a state financial responsibility program.

Whatever method is used, the person or organization providing the coverage must execute a contract, letter, or other document worded exactly like those written in the regulations. For example, an insurance policy issued for financial responsibility must provide coverage conforming to the description of insurance contained in the regulation.

The EPA has developed many alternatives to complying with financial responsibility in recognition of the diversity of owners and operators of underground tanks and in recognition of the fact that some alternatives may not be practical or available.  The EPA also permits compliance through a combination of sources.  An owner or operator may comply with the regulations by purchasing coverage for "corrective action" (cleanup) from one source, while purchasing coverage for property damage from some other source.

For many owners and operators, especially small owners and operators, purchasing insurance will be the only practical alternative.  However, insurance is difficult, expensive, and nearly impossible to obtain.  National and regional risk retention groups are being formed to provide coverage but, these groups may or may not take everyone. Some owners and operators are rich enough to support their own in-house financial responsibility mechanism. In recognition of 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 in complying 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:

SUBSTITUTE BILL:  An independent state agency is created to provide discounted reinsurance to an insurance company or risk retention group 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 comprised 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 continually report to the Legislature the progress, finances, and operation of the program.

The program cannot provide coverage in excess of $1 million per occurrence and $2 million annual aggregate. No deductibles, coverage prices, reinsurance contract terms, underwriting standards, and coverage limitations are specified because these aspects of the program will be subject to negotiation with an insurer. The program will not accept every owner and operator, nor will the program 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.

SUBSTITUTE BILL COMPARED TO ORIGINAL:  Technical corrections are made.

CHANGES PROPOSED BY COMMITTEE ON REVENUE:  The petroleum products tax of 0.65 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 of 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. 

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.  Administrative expenditures from the pollution liability reinsurance program trust account are required to be appropriated.

Revenue:    The bill has a revenue impact.

Fiscal Note:      Requested February 10, 1989.

Effective Date:The bill contains an emergency clause and takes effect immediately.

House Committee ‑ Testified For:    (Financial Institutions and Insurance)  Gary Smith, I.B.A.; Tim Hamilton, AUTO; John Woodall, Insurance Commissioner's Office; Bruce Wishart, Sierra Club; Kathleen Collins, A.W.C.

(Revenue)  Tim Hamilton, AUTO; Bruce Wishart, Sierra Club; Gary Smith, Independent Business Association; Randy Ray, W.O.M.A.

House Committee - Testified Against:      (Financial Institutions and Insurance)  None Presented.

(Revenue)  None Presented.

House Committee - Testimony For:    (Financial Institutions and Insurance)  Pollution insurance is unavailable.  Without a state financial responsibility program, owners and operators of underground storage tanks will be forced to discontinue the use of such tanks.  If the owner or operator is a gas station, discontinued use means closing the business.  Moreover, the lack of insurance prevents owners and operators from obtaining financing necessary to upgrade tanks and tank systems.

(Revenue)  The state reinsurance program is needed because the lack of insurance for underground storage tanks prevents owners and operators from obtaining financing necessary to upgrade tanks and stay in business.  A tax related to the use of petroleum products could be used to fund an insurance program.

House Committee - Testimony Against:      (Financial Institutions and Insurance)  None Presented.

(Revenue)  None Presented.