SENATE BILL REPORT

2SHB 1180

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

Senate Hearing Date(s):March 23, 1989; March 31, 1989

Majority Report:  Do pass as amended and be referred to Committee on Ways & Means.

      Signed by Senators von Reichbauer, Chairman; Johnson, Vice Chairman; Fleming, McMullen, Moore, Rasmussen, Sellar, Smitherman, West.

Senate Staff:Walt Corneille (786-7416)

                  March 31, 1989

Senate Committee on Ways & Means

Senate Hearing Date(s):March 31, 1989; April 3, 1989

Majority Report:  Do pass as amended.

      Signed by Senators McDonald, Chairman; Craswell, Vice Chairman; Amondson, Bailey, Bauer, Bluechel, Cantu, Hayner, Johnson, Lee, Matson, Moore, Newhouse, Niemi, Owen, Saling, Smith, Talmadge, Williams, Wojahn.

Senate Staff:William Bafus (786-7715)

                  April 7, 1989

AS REPORTED BY COMMITTEE ON WAYS & MEANS, APRIL 3, 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.  All owners and operators must be in compliance by October 26, 1990.

Proof of financial responsibility as specified by EPA regulations may be met by a variety of methods including 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 very difficult to obtain and, when obtainable,  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 financial responsibility requirements and which limits the state's liability.

House Bill 1180 originated as a result of the findings of the Joint Select Committee on Storage Tanks.

SUMMARY:

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.  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.  Coverage must be priced to reflect the risks of each owner and operator.  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 pollution prevention methods.

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

Program funding is accompanied through a petroleum products tax of 0.65 percent 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 the state as fuel and 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 must be appropriated.

Appropriation:    none

Revenue:    yes

Fiscal Note:      available

Effective Date:The tax imposed by this bill takes effect July 1, 1989.  The remainder of the bill takes effect immediately.

SUMMARY OF PROPOSED FINANCIAL INSTITUTIONS & INSURANCE AMENDMENTS: 

There is only one technical advisory committee to the administration of the pollution liability reinsurance program.  The committee is appointed by the Governor, not the administrator.

The petroleum products tax is changed from .65 percent to .30 percent.

If the pollution liability reinsurance trust account at the end of a fiscal year is estimated at $15 million or more, the treasurer may not collect the petroleum tax for the next fiscal year.  If the account is $5 million or less, the treasurer shall collect the tax until the fund reaches $15 million.

SUMMARY OF PROPOSED WAYS & MEANS AMENDMENTS:

The tax rate is changed from .3 percent to .5 percent.  The "floor" balance in the pollution liability trust account is increased from $5 million to $7.5 million.  For purposes of this bill, the state of Washington is removed from the definition of "state" for tax credit purposes.  $3 million plus accrued interest from July 1, 1988 is appropriated from the toxics control reserve account to the pollution liability reinsurance program trust account.  If that money is not available from the toxics control account, the appropriation is made from the state general fund appropriation to the Department of Ecology.  $400,000 is appropriated from the pollution liability trust reinsurance program account to the Washington pollution liability program.

Senate Committee - Testified: FINANCIAL INSTITUTIONS & INSURANCE:  FOR:  Gary Smith, Independent Business Association; Vern Lindskog, WSPA; Bruce Wishart, Sierra Club; Randy Ray, WOMA/WAWG; Terry Husseman, Department of Ecology; Tim Hamilton, Automotive United Trades Organization; Beverly Jacobson, Seattle Area Hospital Council and Washington Hospital Council

Senate Committee - Testified: WAYS & MEANS:  Senator Kreidler; Randy Ray, WOMA/WAWG (for); Gary Smith, Independent Business Association (for); Bruce Wishart, Sierra Club (for); Tim Hamilton, AUTO (for); Vern Lindskog, WSPA (for); Robert Mauseth, Parker, Smith & Feek; Terry Husseman, DOE