UNDERGROUND STORAGE TANK POLICY–DESIGNATED TANKS OVERVIEW

(November 2022)

INTRODUCTION

Decades ago, it was discovered that a massive effort was needed to identify myriad underground storage tanks, test them, retrofit or abandon them, and clean up the damage they did to the groundwater supply. The problem had to be addressed and resolved at the national level because it existed in every state. The federal government created the Environmental Protection Agency (EPA) and empowered it to oversee and provide solutions for the problem.

GOVERNMENT ACTION

The Resource Conservation and Recovery Act of 1976 (RCRA) was the legislation that gave the EPA the authority to regulate storage of hazardous materials, protect human health, and preserve the environment. It was amended in 1984 to specifically deal with underground storage tanks. The legislation that resulted was known as the Hazardous and Solid Waste Amendment and included eight categories of regulation.

The seventh category requires that owners of underground storage tanks prove financial responsibility. This insurance policy was developed because insurance was one of the financial responsibilities.

ELIGIBILITY

The Insurance Services Office (ISO) CG 00 42–Underground Storage Tank Policy–Designated Tanks was originally developed for entities that were involved with petroleum products production, refining, and marketing and that owned or operated underground storage tanks that contained a variety of petroleum products. Eligibility was broadened and now includes any entity that owns or operates an underground storage tank that contains any petroleum product.

COVERAGE

CG 00 42 is a monoline liability coverage form written on a claims-made basis. Coverage applies to petroleum storage tanks the insured either owns or operates that are listed and described on the declarations. A retroactive date is required because coverage is written on a claims-made basis.

CG 00 42 has two coverage parts. Coverage A provides liability coverage for third party claims due to bodily injury or property damage caused by an underground storage tank incident. Coverage B provides coverage for the costs of corrective actions needed for off-site cleanup in addition to cleanup on the insured's premises on an incident-reported basis. Underground storage tank incidents must be confirmed and reported to the insurance company and/or the EPA.

LIMITS OF INSURANCE

CG 00 42 has three separate limits of insurance.

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

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

· 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.

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. Condition 17 in CG 00 42 details the duties and responsibilities involved in transferring defense to the insured when the Defense Expense Amount or the Limits of Insurance are used up.

CANCELLATION

Federal EPA regulations with respect to cancellation requirements differ from or conflict with the cancellation provisions and requirements in a number of states. As a result, the cancellation conditions in CG 00 42 are different and reflect the federal EPA regulations. However, state-specific cancellation and non-renewal endorsements are available to modify this condition in order to comply with individual state requirements.

POLICY COMPOSITION

The Underground Storage Tank Policy consists of the following basic parts or forms:

CG DS 07–Underground Storage Tanks Liability Declarations

CG 00 42–Underground Storage Tank Policy–Designated Tanks

Policy Cover Page or Jacket. Individual insurance companies design this form for their own purposes. It may include a table of contents or index to meet the requirements of some states.
IL 00 17–Common Policy Conditions
IL 00 21–Nuclear Energy Liability Exclusion Endorsement (Broad Form)

CG 00 42–UNDERGROUND STORAGE TANK POLICY–DESIGNATED TANKS

CG 00 42 includes the following sections:

Section I–Coverages

Coverage A–Bodily Injury and Property Damage Liability Insuring Agreement
Coverage B–Corrective Action Costs Insuring Agreement
Exclusions
Our Right and Duty to Defend
Defense Expense Payments
Supplementary Payments
No Other Obligation or Liability

Section II–Who Is an Insured

Section III–Limits of Insurance and Defense Expense Amount

Section IV–Conditions

Section V–Extended Reporting Periods

Section VI–Definitions

AVAILABLE ENDORSEMENTS

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

Note: ISO is introducing four new endorsements with an edition date of 12 19. All are optional endorsements but some insurance carriers may make their addition mandatory. The brief descriptions provided may be helpful in determining their impact on your client. The CG 99 09–Premium Audit Noncompliance Charge could be a particular concern on this policy because the charge assessed could be significant.

UNDERWRITING

The primary underwriting and classification factors include the age and construction of each tank, the type of contents it holds, the storage capacity, and details of any protective devices. Other important factors include details about the insured's operations, the number of tanks insured, and the annual volume stored or dispensed through each tank. Insurance companies use these factors (with various emphasis) to determine eligibility and underwriting acceptability for their programs. Other important issues include the type and frequency of preventive maintenance, record keeping of maintenance performed, and details on 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.

RATING

The minimum annual premium was around $1,000 per tank when this coverage first became available. Minimum premiums may now be considerably lower, especially for "good" tanks with all protective devices. Charges vary based on tank construction, age, product stored, storage capacity, and protective devices.