Financial responsibility is the demonstrated capability to pay for remediating potential damage to the environment, or compensating third parties for the costs of damages. Federal and state laws and rules require the owner or operator of a regulated petroleum underground storage tank (UST) to obtain financial assurance. Owners or operators who can’t prove that they have the required financial responsibility may be subject to an enforcement action and penalties.
When you obtain financial assurance, keep the paperwork to show full funding of the financial responsibility at either the tank site or the owner or operator's workplace. This includes a Certification of Financial Responsibility (COFR, template [DOC]). The COFR must be updated whenever the information changes. You may need to show the paperwork to the IDEM inspector or send a copy to the department if asked. This would also include the financial assurance for the deductible. If it is a new tank, the owner or operator must send a statement to IDEM certifying that they have financial responsibility as required on the notification form, and keep copies of the evidence.
The Office of Land Quality (OLQ) will provide a certificate of financial responsibility to eligible owners or operators that request it. This certificate says that the Excess Liability Trust Fund (ELTF) fulfills the federal and state financial responsibility requirements and the UST owner or operator is covered for all but the cost of the deductible. It will also state the amount of money available for corrective action and compensating third parties that is assured by the fund. If you are not eligible to use the ELTF, federal and state laws still require owners/operators of regulated tanks to have financial responsibility.
Amount of Coverage
An owner or operator of 1 to 100 UST systems must have $1 million in financial assurance. An owner or operator of more than 100 UST systems must have $2 million. But if the owner or operator pays the tank fees and is eligible for the ELTF, then the amount required for financial responsibility is reduced to the deductible for the ELTF for each release.
Types of Financial Assurance
You can use one or more methods available to you for financial responsibility to make up the total for either the deductible for the ELTF, or for general financial assurance.
Methods for the ELTF Deductible
- Loan Guarantee: A written promise by a qualified financial institution to give the owner or operator a loan for the full amount of the cost of the deductible.
- Certificate of Deposit: An interest-bearing certificate purchased by the owner or operator.
- Accountant's Letter of Net Worth: A letter signed by a certified public accountant that verifies the tangible net worth of the owner or operator and that the net worth is sufficient to pay the deductible.
- Insurance: A contractual arrangement where the owner or operator pays for a policy and the insurer agrees to reimburse the policyholder for the deductible for the ELTF.
- Surety Bond: a bond issued by a surety company for a premium paid by the owner or operator. A standby trust must be established if this method is used.
- Irrevocable Standby Letter of Credit: Issued by a bank or other qualified financial institutions for a fee paid by the owner or operator. The financial institution may require collateral of as much as 100% of the face value of the letter.
- Trust Fund: Money put into a trust that covers the full cost of the deductible.
- Guarantee: A contract between the guarantor and the owner or operator to provide the money for the deductible using a method described above.
- Insurance: A contractual arrangement where the owner or operator pays for a policy and the insurer or risk retention group agrees to reimburse the policy holder for costs of cleanups and 3rd party compensation.
- Corporate Guarantee and standby trust fund: A contract between another eligible firm and the owner or operator to provide the money for cleanups and 3rd party compensation. The eligible firm must pass a financial test. A standby trust must also be established if this method is used.
- Surety Bond and standby trust fund: A bond issued by a surety company for a premium paid by the owner or operator. The surety bond is a guarantee by the surety company that it will pay if the owner or operator does not pay. A standby trust must be established if this method is used.
- Irrevocable Standby Letter of Credit and standby trust fund: Issued by a bank or other qualified financial institutions for a fee paid by the owner or operator. The letter of credit says that the issuer of the letter will provide the money. A standby trust must be established if this method is used.
- Qualifications to be self-insured: The owner or operator with a tangible net worth of at least $10 million must pass a financial test.
- Trust Fund: The owner or operator must set up a full-funded trust fund administered by a bank to pay for costs for cleanups and 3rd party compensation.
- Excess Liability Trust Fund: The excess liability trust fund is money from tank fees, late fees, penalties, etc., administered by the state and covers the cost of cleanups and 3rd party compensation.
- Other methods may be suggested by the owner or operator and approved by the state.
Methods for Local Governments
A local government (city, county, single or joint solid waste management district, municipal corporation, municipality, school corporation, special district, special taxing district, town, township, unit, Indian tribe, other legal entity) can use a few additional methods for financial assurance or the ELTF deductible.
- Local government bond rating test: The local government must have outstanding bonds of $1 million with certain ratings to qualify.
- Local government financial test: Local government must pass a financial test to show it can cover the cost of cleanups and 3rd party compensation.
- Local government guarantee: A contract between the local government and the owner or operator. The contract states that the local government will provide the cost of cleanups and 3rd party compensation if the owner or operator can't.
- Local government fund: Local government sets aside money in a dedicated fund.