Yesterday, we talked about the many reasons why insurance companies often fall short on compensation to O/Os. One of these reasons is because federal requirements can dictate the minimum terms the policies must contain.
Federal minimum requirements leave lots of room for insurance companies to design policies according to their own preferences. According to OUST, this is exactly what EPA intended in writing the regulations – providing the industry with considerable flexibility to design its own products and letting the market dictate which additional provisions are ultimately included in policies. At the same time, OUST consistently found that policy language is rarely written to ensure prompt response to and coverage of all claims. In reviewing the UST policies, OUST found that gaps in coverage and other potential problems for policy holders may occur for the following reasons.
Retroactive dates. A retroactive date is the date after which an accidental release will be covered under an in-force claims-made insurance policy. The date may precede or be the same as the policy’s effective date. Also, an UST pollution insurance policy may have different retroactive dates for different tanks. According to OUST, the ideal retroactive date stretches back to the original installation date of the UST since an UST begins to present pollution exposure risk at the time of installation. But OUST’s review found significant coverage gaps, including one of over 40 years, between installation dates and retroactive dates. In other words, an O/O with hundreds of USTs installed at various times may receive no coverage for any discovered release that predates the retroactive date.
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Coverage for temporarily out of service (TOS) tanks. TOS tanks are not operating or are not in use. Some TOS tanks may be empty. However, dormant tanks typically still contain product, although the system to which they are attached is not running and product throughput is not occurring on a regular basis. According to the federal UST FR regulations at 40 CFR 280.113, O/Os are required to maintain FR until after the tank has been permanently closed or until after corrective action has been completed and the tank has been permanently closed. OUST found through anecdotal information that some insurance companies offered coverage for TOS tanks, but others immediately ceased covering tank systems that were no longer in use even though such USTs may still contain a regulated substance and thus may present a risk of a release.
UST status at time of release. The UST from which the release emanates must qualify for coverage at the time of the release. According to OUST’s report, this can play out in policies in several ways. OUST found that eight of the 25 policies required policy holders to notify the carrier at least 48 hours before a voluntary removal or replacement of an UST so that a carrier representative can be present to observe and take action as necessary. O/O noncompliance with this provision can jeopardize coverage for losses or contamination that occurs during removal or replacement. Status can also refer to whether the UST is in compliance with environmental law. Twenty-two of the 25 policies contain an exclusion that precludes coverage for losses based upon, arising out of, or attributable to failure to comply with environmental laws.
Claim notification. Obligations to report a claim as specified in a policy are absolute. If the obligation is not fulfilled in the manner required by the policy, coverage may be reduced or denied. Phrases referring to timeframe commonly found in policies include “immediate written notice,” “in writing as soon as possible,” and “as soon as practicable.” However, these phrases are not defined in policies and so are open to interpretation, which may lead to problems in O/Os qualifying for coverage.
Other definitions. OUST notes that definitions for critical phrases such as pollution conditions and releases and clean up or corrective action costs can vary radically from policy to policy. This is an area of particular concern for environmental regulators, who place great emphasis on consistently defining key phrases in regulations. Absent such consistency, UST policy holders may not be sure where their coverage begins and ends.
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O/Os Need More Education
Based on the limited data it reviewed, OUST states that it does not appear that insurance carriers are excessively or dismissively denying claim payments. However, OUST also states that a conclusion that UST insurance is effective as a FR mechanism cannot be made. “EPA acknowledges that this study identified certain aspects of UST insurance that may be at odds with EPA’s ideal of how and when a FR mechanism should respond to releases,” states OUST.
One solid recommendation OUST makes is that O/Os need to be better educated about UST pollution insurance. According to OUST, improved education could include:
Educational seminars for O/Os. These could be offered through state or national associations to which many owners and operators belong. The sessions could be provided through in person group settings, webinars, and online classes.
Educational materials on EPA’s website for owners and operators. Educational materials could also be distributed through petroleum marketer and convenience store associations in states where UST insurance is relied upon to meet the federal UST FR regulation.
An online resource to access UST pollution insurance information. Resource examples include articles discussing UST pollution insurance provisions to be aware of; implications of buying insurance based solely on price; historical court cases highlighting challenges UST insurance policies may present as an avenue to obtain coverage for releases; checklists to compare UST pollution insurance quotes and coverage; and webinars.
And, as OUST sees it, the top item in any educational effort should be retroactive dates. “Barring unusual circumstances and all other things being equal, an O/O should strive to purchase the oldest retroactive date possible,” says OUST.
EPA’s Study on the Effectiveness of UST Insurance as a Financial Responsibility (FR) Mechanism should be required reading for anyone purchasing UST insurance for the first time or renewing, reviewing, or replacing an existing policy.
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