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Tank Owner and Operator Financial Responsibility Information

It is important for tank owners and operators to understand what submission of the State Oil Spill Fund as a financial responsibility mechanism means. The following content is dedicated to the subject of financial assurance.

The Spill Fund - The New York Environmental Protection and Spill Compensation Fund (the "Oil Spill Fund") was established in 1977 by Article 12 of the State Navigation Law. This Fund is a non-lapsing, revolving fund that is financed by an eight cent per barrel fee on the first transfer of petroleum to a major petroleum facility in New York State, as well as recoveries and penalties from responsible parties. The Fund is not limited to releases from underground storage tanks, as it covers releases from any source such as vessels, vehicles, pipelines and aboveground tanks, both to surface and ground waters. Currently, the Oil Spill Fund is used to remediate approximately 5% of all reported petroleum discharges, with responsible parties paying the cost of the other 95%.

"Financial responsibility" and who it applies to

Federal law and the Federal Underground Storage Tank (UST) Regulations (40 CFR Subpart H) require that owners and operators of certain underground tanks have the financial means to help pay for the costs of corrective action and third party damages caused by a release from their underground tank. These costs could include cleaning up leaked petroleum, correcting environmental damage, supplying drinking water, and compensating injured parties for personal injury or property damage.

Financial responsibility for Bulk Storage Tanks under Subtitle 1 of the Resource Conservation and Recovery Act

Kinds of underground tanks covered by the federal law

Underground petroleum tanks, including the connecting pipes, which have a capacity of more than 110 gallons are covered. Certain tanks have been exempted from the law including heating oil tanks used for on-premises consumption, farm or residential tanks with a capacity of 1,100 gallons or less which store motor fuel for noncommercial purposes, operational tanks and others. (See 40 CFR 280.12)

Mechanisms that can be used as proof of financial responsibility

The following can be used to prove financial responsibility:

  • Liability insurance coverage from a qualified provider
  • Financial test of self-insurance
  • Guarantee*
  • Surety bond*
  • Letter of Credit
  • State Fund (New York's State Fund does not cover all aspects of financial responsibility required by 40 CFR 280, see questions below)
  • Trust fund
  • Local government bond rating test
  • Local government financial test
  • Local government guarantee*
  • Local government fund

Note: the last four mechanisms, as implied by their names, are only applicable to municipalities and other forms of local government, not private sector owners and operators.

* Guarantees and surety bonds are currently not allowed pending a statement from the State Attorney General that they are legally valid and enforceable obligations in New York State.

The Oil Spill Fund, in some instances, covers cleanup costs and third-party property damage for tank owners and operators as a financial assurance mechanism.

The State Oil Spill Fund has been approved as a partial financial responsibility mechanism for facility owners, covering corrective action (cleanup) and third-party property damage for facilities set forth in classes 3 and 4 below. Submitted as a financial responsibility mechanism for tank owners who fall into categories 3 and 4 below.

Class 1. All petroleum marketers owning 1,000 or more UST's, and all other UST owners that report a tangible net worth of $20 million or more;

Class 2. All petroleum marketers owning 100 - 999 UST's;

Class 3. All petroleum marketers owning 13 - 99 tanks at more than one facility; and

Class 4. All petroleum UST owners not described in 1 - 3 above, including all local government entities.

The Spill Fund does NOT cover third party bodily injury, coverage which is required by 40 CFR 280. This coverage must be obtained by the facility owner, through one of the mechanisms listed in 40 CFR 280, in order to be in compliance with Federal regulations.

The Oil Spill Fund is an assurance fund, not liability insurance

The Oil Spill Fund is not an insurance fund and does not provide insurance to tank owners. One mechanism allowed under the federal regulations for showing evidence of financial responsibility is inclusion in a state "assurance" fund. In an assurance fund, such as the State Oil Spill Fund, the State assures that monies will be made available, in the State's discretion, to remediate releases from underground storage tanks to protect the public health and the environment should the tank owner or operator not take appropriate action.

If a tank leaks, the Oil Spill Fund will not pay cleanup costs. The tank owner is still responsible for the cost of cleanup. The Oil Spill Fund is a fund used by the State to protect the environment and public health when the spiller is unknown, unwilling or unable to clean up a spill in a timely manner. If the Oil Spill Fund pays for the cost of your tank cleanup, the Fund Administrator will make every attempt to recoup the amount of money spent from you, plus interest and penalties where warranted, including putting a lien on your property.

The Oil Spill Fund brings Class 3 and 4 tank owners into compliance with federal financial responsibility requirements

With EPA's approval of the State's Spill Fund, class 3 and 4 owners and operators are considered to be in compliance with the federal financial responsibility requirements for corrective action and third party property damage.

The Fund is not liable for claims for third party bodily injury. Therefore, owners and operators are still responsible for obtaining coverage for this aspect of the financial responsibility requirements.

Liability to third parties for bodily injury and property damage

EPA requires that owners or operators demonstrate that they are able to compensate other parties for bodily injury and property damage caused by accidental releases resulting from the operation of an underground petroleum storage tank.

Health Related Damages

The Spill Fund will not cover damages if someone suffers health problems because of fumes from a leaking tank. The tank owner remains responsible to meet this portion of the Federal Financial responsibility requirements through private insurance or other mechanisms.

Insurance to cover the cost of a tank leak

40 CFR 280 requires that all Federally Regulated facilities obtain one of the financial responsibility mechanisms allowed in section 280.94. Even if you're covered by the Spill Fund as your mechanism of financial responsibility for cleanup and third party property damage, obtaining additional coverage may be prudent. Cleanup can be expensive, and the Fund Administrator will attempt to recoup all monies spent from the Fund resulting from a spill at your facility. Therefore, many tank owners opt to purchase insurance for financial protection. Keep in mind when deciding whether or not to purchase insurance, that the submission of the Spill Fund by the State was intended to act as an interim solution to give facilities time to come into compliance on their own with the financial responsibility requirements. Contact your local insurance carrier to discuss coverage. In addition, you can contact the State Insurance Department for information about obtaining insurance of this kind.

Requirements for meeting the financial responsibilities by using the Oil Spill Fund

At this point, owners and operators of 99 or fewer tanks, local governments and non-petroleum marketers with a net worth of less than $20 million are deemed in compliance with the federal financial responsibility requirements for corrective action and third party property damage. When EPA approved the Fund, the State sent notices to those tank owners/operators who were affected.

As a reminder, the Oil Spill Fund does not provide insurance nor does it pay for the cleanup costs. Please see the information above on "The Oil Spill Fund is an assurance fund, not liability insurance."

If you have further questions about what coverage the State Oil Spill Fund provides to petroleum UST owners/operators, please call the DEC Bulk Storage Help Line - (518) 402-9543.

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