Financial responsibility is the demonstrated capability to pay for remediating potential damage to the environment, or compensating third parties for the costs of damages resulting from a release from an underground storage tank (UST). Federal and state laws and rules require the owner or operator of a regulated petroleum 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 financial responsibility to cover any deductible if using the Excess Liability Trust Fund (ELTF) as your financial assurance mechanism. If it is a new tank, the owner or operator must certify they have financial responsibility as required on the UST notification forms (State Form 56548 and/ or State Form 45223) and keep copies of the evidence.
The Office of Land Quality (OLQ) will provide a certificate of financial assurance to eligible owners or operators that choose ELTF as their mechanism and successfully complete the online UST notification form. 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 demonstrate 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.
Types of Financial Assurance
You can use one or more methods to demonstrate the ability to pay either the general financial responsibility amount above or the ELTF deductible.
Methods for the ELTF Deductible
- Loan Guarantee: From a qualified financial institution to give the owner or operator a loan for the full amount of the deductible.
- Certificate of Deposit: From a federally insured financial institution.
- Liability Insurance: From an insurer or risk retention group.
- Surety Bond: Issued by a surety company for a premium paid by the owner or operator.
- Irrevocable Standby Letter of Credit: Issued by a bank or other qualified financial institutions for a fee paid by the owner or operator.
- Trust Fund: Covering the full cost of the deductible.
- Guarantee: From a person other than the owner or operator of the USTs, guaranteeing to provide the money for the deductible using a method described above.
- Liability Insurance: From qualified insurer or risk retention group.
- Corporate Guarantee and standby trust fund: From another eligible firm that must pass a financial test. A standby trust must also be established if this method is used.
- Surety Bond and standby trust fund: From a surety company indicating 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 satisfies one of the financial tests as specified by 329 IAC 9-8-6.
- Trust Fund: The owner or operator must set up a full-funded trust fund usually administered by a bank to pay for costs for cleanups and 3rd party compensation.
- Excess Liability Trust Fund: Administered by the state and covers the cost of cleanups and 3rd party compensation for eligible releases.
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 given this term by applicable state law) 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: Given to a local government owner or operator by another local government entity who agrees to provide the cost of cleanups and 3rd party compensation if the owner or operator can't.
- Local government fund: Money set aside in a dedicated fund.