UNDERGROUND STORAGE TANK POLICY–DESIGNATED TANKS UNDERWRITING CONSIDERATIONS

(November 2022)

BACKGROUND AND BASIC CONSIDERATIONS

Almost every operation that has a petroleum products underground storage tank is subject to regulations that the United States Environmental Protection Agency (EPA) and/or the cooperating state agency publishes. They apply to property owners and operators that have retail or wholesale sales or distribution of gasoline, fuel oil, or other petroleum products and many other operations that have underground petroleum storage tanks.

Every owner or operator of such tanks are held financially responsible in connection with their use. The only exceptions are for small tanks that serve farms and homes. The regulations even extend to government entities, Indian tribes, and small operations with a single 110-gallon or larger capacity tank. These owners or operators must present proof of their financial ability to pay the costs of third-party liability claims as a result of leakage as well as the costs of any corrective action the EPA requires to repair the tank or clean it up after a leakage event. Proof of financial responsibility can be met in a number of ways but insurance is the most commonly used way to comply with EPA requirements.

These rules represent only minimum requirements and simply meeting them does not limit the owner or operator’s liability from a party alleging injury or damage from an underground storage tank incident. The Insurance Services Office (ISO) developed the first version of CG 00 42–Underground Storage Tank Policy–Designated Tanks in 1991. It worked closely with the EPA to be certain that it would meet EPA financial responsibility requirements. Much of the language in CG 00 42 came directly from applicable EPA regulations. In turn, the EPA thoroughly reviewed the policy and determined that it complies with all government and EPA requirements.

CG 00 42 was originally developed for entities involved with petroleum products production, refining, and marketing that owned or operated underground storage tanks that contained a variety of petroleum products. Eligibility was later broadened to include any entity that owns or operates an underground storage tank that contains any petroleum product.

Each insurance company establishes its own eligibility standards. The Limits of Insurance, Defense Expense Amount, deductibles, rating program, and minimum premiums are at the company's discretion but must comply with EPA minimums. Credits for any protective devices are also at the company's discretion.

UNDERGROUND STORAGE TANK GENERAL UNDERWRITING CONSIDERATIONS

The primary underwriting and classification factors include each tank’s age and construction, the type of contents, the storage capacity, and details of any protective devices. Other important factors include details of the insured's operations, the number of tanks insured, and the annual volume stored or dispensed from each tank. Insurance companies use these factors in different combinations when determining eligibility and underwriting acceptability for their programs. Other issues that require attention include the type and frequency of preventive maintenance, record keeping of maintenance performed, and details of how shortages of any stored petroleum product are monitored to determine the cause, whether from seepage, leaks, or spills. The protective devices used to monitor leaks and overflows must also be evaluated. Due to the extent of upgrades of existing tanks and the proliferation of new tanks since the regulations were implemented, applications for insurance coverage and premium quotations on tanks that meet the new standards are available on the Internet.

AVAILABLE ENDORSEMENTS

The scope of coverage CG 00 42 provides is relatively narrow. For this reason, there are only a limited number of endorsements available to use with it.

DEDUCTIBLES

Insurance companies apply deductibles on a case-by-case basis and at their discretion. They determine the deductible amounts and the corresponding rating credits, based on the size of the deductible and how it applies. Deductibles usually begin at $5,000 per incident.

LIMITS OF INSURANCE

The Limits of Insurance are important and must be selected carefully because simply complying with EPA minimums may not be enough. The EPA minimum requirements do not limit the owner’s or operator's liability. Being certain that the named insured has adequate limits is not simple. The age, construction, and volume of each underground storage tank must be evaluated and considered carefully, in addition to its proximity to other premises or ground water that could be contaminated in a covered incident.

CG 00 42 has three separate limits of insurance.

· The Incident Limit is similar to the Each Occurrence limit in ISO CG 00 01–Commercial General Liability Coverage Form. It is the most paid in any one underground storage tank incident for all damages for bodily injury, property damage, and corrective action costs.

Example: Underground Uriah's has CG 00 42 with a $1,000,000 Incident Limit. It has a large underground storage tank on the corner of its property that ruptures and discharges oil on two different adjacent properties. Although the total amount of the two claims brought is $2,000,000, the $1,000,000 Incident Limit applies.

· The Aggregate Limit is similar to the Aggregate Limit in CG 00 01. It is the total paid for the sum of all underground storage tank incidents during the policy period.

Example: Underground Uriah's has CG 00 42 with a $2,000,000 Aggregate Limit. Three separate incidents occur in the same year, each valued at $1,000,000, for a total of $3,000,000. While each qualified as a covered loss, the $2,000,000 Aggregate Limit was the total paid to Uriah’s.

· The third limit is unique to CG 00 42. It is the Defense Expense Amount. This amount is the most the insurance company pays for defense expenses in one policy period, regardless of the number of incidents, claims made, or suits brought. The company's obligation to defend ends when the Defense Expense Amount is used up, even if it must still reimburse for settlement amounts or corrective action costs. Defense expenses above this amount are the insured's responsibility.

Note: The Defense Expense Amount must also be selected carefully because it applies regardless of the number of incidents, claims made, or suits brought during the policy period. Once it is used up in any policy period, the insurance company's obligation to defend ends and the named insured is responsible for any additional defense expenses. EPA regulations provide for and permit the Defense Expense limitation. The insurance company's obligation to defend also ends when the loss exceeds the Incident Limit or when the Aggregate Limit is used up by paying claims. CG 00 42 Section IV–Conditions 17. Transfer of Duties when a Limit of Insurance or the Defense Expense Amount is Used Up details the duties and responsibilities for transfer of defense to the insured when the Defense Expense Amount or the Limits of Insurance have been depleted.