Underground Storage Tank Insurance Issues

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An underground storage tank (UST) is a tank that has at least 90 percent of its combined volume underground. Below is an example, prior to underground installation.

Tank1

Underground storage tanks generally fall into a number of types:

1. Steel/aluminum tanks;

2. Steel/aluminum tanks with a plastic material around the metal tank for additional corrosion protection; or

3. Composite tanks such as carbon fiber with a polymer liner.

Tank2

USTs are regulated in the United States to prevent release of oil based materials and to prevent groundwater contamination. They are used throughout the U.S. at gas stations and many have leaked, allowing contamination of soil and groundwater. Many USTs installed before 1980 consisted of mere steel tanks, which corrode over time and may eventually leak. Inept installation may also cause leaks.

The Resource Conservation and Recovery Act (RCRA) required the EPA to develop regulations for the underground storage of gasoline based products so as to prevent environmental damage, by requiring owners and operators of UST systems to verify, maintain, and, if necessary, clean-up sites damaged by petroleum contamination.

The legislation required owners to locate, remove, upgrade, or replace underground storage tanks. Each state was given authority to establish a program within its own jurisdiction to set up a program to compensate owners for the cleanup of underground petroleum leaks.

Many owners, who previously stored fuel in underground tanks, switched to above-ground tanks to enable closer environmental monitoring of fuel storage and to reduce costs. Many states, however, do not permit above-ground storage of motor fuel for resale to the public.

The UST program has been considered a success in that inventory of underground tanks has been reduced by more than half, and most of the rest have been replaced or upgraded.

Underground storage tank insurance issues call for application of my expertise in the following areas: (i) the regulation of insurance, (ii) underground storage tanks themselves including related insurance and (iii) insurance companies and their duties and obligations in particular as to their policy forms and claim settlement practices as it relates to underground storage tanks (I do not express legal opinions in this report. My opinions are based on custom and practice in the industry that come to bear on this matter).

Brief Summary of Applicable Underground Storage Tank Expertise

Expertise as to Underground Storage Tank Matters and State Operated Insurance Funds. I am a former member of The Iowa Comprehensive Petroleum Underground Storage Tank Fund (Iowa Fund) - Board of Directors. The Iowa Fund provided for a facility and a fund much like that in most states. The related Iowa facility, like other state facility, applies to petroleum USTs for which an owner or operator is required to maintain proof of financial responsibility under federal or state law.

The Iowa Board’s duties included assisting owners and operators of petroleum USTs in complying with federal environmental protection agency technical and financial responsibility regulations. The Board’s authority included that of (i) issuing bonds relating to the Fund’s objectives including that of remediation and other clean-up work, (ii) adopting rules regarding practice and procedures, (iii) developing underwriting standards, (iv) establishing procedures for investigating and settling claims made against the fund, (v) guarantying loans, (vi) acquiring property, (vii) disposing of property improvements and (viii) granting mortgages and liens.

In sum, I am familiar with these Funds including that of most other states, including knowledge of their objectives and their day to day operations. In addition to this direct experience, I have had as well the following experience directly related to the underground storage tank matters as they relate to insurance.

Applicable Underground Storage Tank Funds and Insurance Issues Expertise: Regulatory. My expertise as to these matters can be found as follows.

I am a former:

  • Commissioner of Insurance (Iowa);
  • First Deputy Commissioner of Insurance; and
  • Assistant Attorney General assigned on a full time basis to the Department of Insurance (Iowa) (Functioning as the Department’s general counsel) .
  • Administrative Law Judge, f/k/a Hearing Officer;
  • Member of the National Association of Insurance Commissioners (NAIC) and Member of its Executive Committee;

In those capacities, on a daily basis, I had full regulatory oversight and responsibility for and the application of (i) the regulation of insurance, (ii) underground storage tank funds and related insurance, and (iii) insurance companies and their duties and obligations in particular as to their policy forms and claim settlement practices as it relates to underground storage tanks (Because the insurance business is conducted across state lines and more specifically, nationally, the Insurance Codes and Department of Insurance rules and regulations (by whatever name) are substantially similar state over state. This is so because much of insurance regulation, though conducted primarily at the state level, is a result of adoption of national model statutes and administrative regulations as promulgated by the nation’s Insurance Commissioners through the National Association of Insurance Commissioners so as to assure uniformity state over state.

By way of example, Iowa’s insurance laws are substantially similar to that throughout the U.S., the statutory form of which I enforced in Iowa. As such, my regulatory experience is substantially similar to parallel experience and positions in throughout the U.S. (e.g., the position of Commissioner of Insurance or its titled equivalent in the balance of the states). This experience is bolstered by my 40 years of direct insurance experience, including that of being a CEO of a major property casualty entity doing business in the balance of the states and my five years of experience as an elected Member of the Florida House of Representatives where I currently serve as Vice Chairman of the Insurance Committee, with statutory oversight over all matters of insurance including underground storage tanks insurance, which is regulated throughout the U.S. much as it is in Iowa. In addition, I am and have been a practicing insurance lawyer since leaving my CEO position at NCCI).

Applicable Underground Storage Tanks Expertise: Legislative. In addition to my regulatory background, I have served or am serving in the following legislative capacities, each of which included daily knowledge of and interaction with underground storage tanks insurance as it related to (i) the regulation of insurance, (ii) underground storage tank funds and insurance issues, and (iii) insurance companies and their duties and obligations in particular as to their policy forms and claim settlement practices as it relates to underground storage tanks.

  • Legal Counsel to the Iowa House of Representatives;
  • Chief of Staff at the U.S. House of Representatives,
  • Elected Member of the Florida House of Representatives (currently) (I am currently serving my 5th year in the Florida House of Representatives) where I serve as a Member and Vice Chairman of the Insurance Committee (among other committees), which has legislative oversight over all insurance operations in the state (as administered by the Florida Office of Insurance Regulation) including those relating to underground storage tanks insurance;
  • In addition, I have sat on and served as Vice Chairman of the Civil Justice Subcommittee of the Florida House, which has responsibilities as to Florida laws that establish (among other things) liability, which is of course the foundation to underground storage tanks liability at least at the state law level;
  • Elected Member of the Boca Raton City Council; Deputy Mayor of the City of Boca Raton, where I served as the Council’s lead on insurance issues;

Applicable Underground Storage Tanks Expertise: Industry. In addition to my regulatory background and my legislative background as to underground storage tanks, I have served or am serving in the following capacities, each of which included daily knowledge of and interaction with underground storage tanks insurance in the following ways: (i) the regulation of insurance, (ii) underground storage tank funds and related insurance matters, and (iii) insurance companies and their duties and obligations in particular as to their policy forms and claim settlement practices as it relates to underground storage tanks.

  • American Academy of Actuaries, Washington, D.C., (whose members are often intimately involved in underground storage tanks liability insurance) where I served as General Counsel and Chief Lobbyist;
  • President and Chief Executive Officer of the National Council on Compensation Insurance (NCCI), a major U.S. property casualty insurance company doing business throughout the United States. NCCI employs about 1,000 personnel. While CEO, this position entailed responsibility for pricing some $100 billion of property casualty insurance premium;
  • Nationally certified Reinsurance Arbitrator (ARIAS-US), where I sit as an arbitrator on disputes between (among others) insurers and their reinsurers and enter decisions as to underground storage tanks insurance,
  • Attorney practicing primarily in the area of insurance and reinsurance and admitted to practice in Florida, Illinois (This Illinois license is in inactive status, placed there by me at my volition and eligible for reactivation at any point in time upon my request) and Iowa (all upon examination) with an insurance practice;

Applicable Underground Storage Tanks Expertise: Legal. In addition to my regulatory, industry and legislative background, I have served or am serving in the following legal capacities, each of which included daily knowledge of underground storage tanks insurance in the following ways: (i) the regulation of insurance, (ii) underground storage tank funds and related insurance matters, and (iii) insurance companies and their duties and obligations in particular as to their policy forms and claim settlement practices as it relates to underground storage tanks.

  • As stated above, I am an attorney admitted to practice in Florida, Illinois and Iowa (all upon examination) with an insurance practice;
  • Legal Counsel to the Iowa House of Representatives;
  • Practicing attorney at Hager & Schachterle;
  • Iowa Counsel to the Property Casualty Insurance Association of America (PCI).
  • Legal Counsel to the Professional Insurance Agents of Iowa (property casualty agents, who sell among other products, underground storage tanks insurance);
  • Legal Counsel to the Iowa Association of Life Underwriters (life, health and annuity insurance agents).
  • Practicing attorney (currently) in Florida at the Hager Law Firm;
  • General Counsel and Chief Lobbyist to the American Academy of Actuaries, whose members are often involved in underground storage tanks insurance matters;

Applicable Underground Storage Tank Funds and Related Insurance Expertise: Formal Education. In addition to my regulatory, legislative, industry and legal background, my educational background has also well-equipped me to provide underground storage tank funds and related insurance expertise as follows:

  • Bachelors degree: Mathematics (Specifically a B.A. in secondary mathematics education), University of Northern Iowa;
  • Masters degree: Educational Psychology, University of Hawaii; and
  • Juris Doctorate degree (law degree) from the University of Illinois;
  • Bar Admission: U.S. Supreme Court;
  • Bar Admissions, the states of Iowa, Illinois (inactive) and Florida, all by examination;
  • Certified U.S. Reinsurance and Insurance Arbitrator;

In the aggregate, these experiences have given me a significant grounding to provide expert underground storage tank funds and related insurance issues testimony. Further elaboration of that expertise is set out below. In particular, I set out my expertise as to three insuring mechanisms often found in conjunction with underground storage tanks, namely (i) captive insurers, (ii) self-insurance and (iii) commercial general liability insurance. My point in this discussion, is to underscore not only my working knowledge and expertise as to underground storage tank funds and insurance but also the insuring mechanisms that often accompany them.

Expertise as to Captive Insurers as to Underground Storage Tanks

Because captive insurers are often utilized in conjunction with underground storage tanks, I set out here, my background as to captives. In fundamental terms, a captive insurer is simply an insurance company closely held or wholly owned by the insured or insured’s parent with the objective of using the captive as a risk management tool while concurrently optimizing cash flow and tax status.

Captives have been long used in commerce in the U.S. with any number of states actively soliciting corporations to form captives domiciled and regulated in the state. By way of example, Vermont among others has long encouraged captive formation using its state captive law (and of course Vermont vendors) as the vehicle to formulate such insurers.

In all of this, captives are frequently used vehicles for many organizations. Captives permit the parent/owner to (i) show evidence of insurance as may be required by any number of state and federal regulatory bodies, (ii) to show evidence of insurance to private sector entities demanding the same (perhaps with the captive issuing a certificate of insurance as evidence of an underlying policy) and (iii) as an internal vehicle for the parent/owner to manage the related insured risks.

Throughout my career, I have dealt with captive insurers in most every position I have held including among others the following:

  • As Commissioner of Insurance and earlier as First Deputy Insurance Commissioner, I administered the State of Iowa’s self-insurance program for employer’s proof of coverage for workers compensation with any number of employers submitting policies issued by their captive. In those instances my responsibility was to go behind the captive and provide assurance to the state that the captive could pay in the event of workers compensation claims;
  • As general counsel to the American Academy of Actuaries, I dealt regularly with captives in that the member of the Academy, who are qualified actuaries, provided consulting services to captives;
  • As Chief Executive Officer of the National Council on Compensation Insurance (“NCCI”) I dealt regularly as well with captives again in their role in connection with workers compensation;
  • In addition, I have dealt with captives in most every position I have held. They are a vehicle that have

been in use for a long time and their status and characteristics are well understood by those like myself who have been involved extensively in the U.S. insurance industry.

Expertise as to Self-Insurance as to Underground Storage Tanks

Similar to captives, self-insurance has been in use for a long time within the insurance context. Indeed self-insurance precedes insurance itself in that any entity with exposure to loss who does not purchase traditional insurance is in fact self-insured whether by choice or happenstance. Thus, before the advent of organized insurance companies, all organizations of individuals were “self-insured” for loss.

Much like my background relating to captives, I have been exposed from the outset of my insurance career to entities self-insuring specified exposures. Within the insurance industry today, one most frequently encounters self-insurance in a formal way in connection with an entity certifying its ability to meet specified exposure and related loss from that exposure through their status of being self-insured.

Most frequently the status is certified to state and federal agencies who require traditional insurance as a condition to a license, certificate or permit. In lieu of traditional insurance, the applicant states that they are “self-insured” for the risk in question and typically provide their financial reports together with their application as a self-insured. The agency evaluates the application and the financials in order to reach a conclusion that the applicant can or cannot meet the future losses through their own financial resources. As stated, I have dealt with and encountered and administered self-insurance programs at most every level and position I have held within the insurance industry and possess expertise as to self-insurance.

CGL policies and their insurers and Underground Storage Tanks

Commercial general liability (CGL) policies often come into play with respect to underground storage tanks – in cases where insurance issues arise. Click on the link to view my CGL expertise in more detail.

Contact underground storage tank insurance expert Bill Hager at 561-306-5072 or via email to discuss your case.

William D. Hager - Insurance and Reinsurance Expert and Arbitrator

William D. Hager

Insurance and Reinsurance
Expert and Arbitrator

561-306-5072


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