Do you have concerns about the potential financial risks that your business may face in the event of release from your underground storage tank? Under Federal law, owners and operators of certain underground storage tanks (USTs) must provide proof of financial responsibility–the ability to cover costs for cleanups and third-party damages if the tank should leak and contamination occurs.
Each state’s regulation agency has its own guidelines that must be followed by the tank owner/operator. In this article, we will discuss:
- The definition of financial responsibility for USTs in North Carolina
- When proof of financial responsibility must be presented to the North Carolina Department of Environmental Quality (NCDEQ) and/or the North Carolina Leaking Underground Storage Tank Trust Fund (LUST Trust Fund),
- The various methods that may be used to comply with the requirements in North Carolina.
What is Financial Responsibility as it Applies to Underground Storage Tanks in North Carolina?
If you own or operate an underground storage tank at a commercial business or local government property, it is a requirement to provide proof of adequate funds to cover the cost of a cleanup should a leak or spill occur.
Cleanups may include, but are not limited to:
- Correction of environmental damage
- Compensation for any injury to individuals
- And/or supplying clean drinking water.
The NCDEQ UST section maintains the financial responsibility. Federal and State Government owners and non-commercial tank owners are not required to prove financial responsibility. If the tank is owned and operated by two parties, only one party is required to provide proof of financial responsibility. However, in the event of noncompliance, both parties are responsible.
What is the LUST Trust Fund?
The North Carolina Leaking Underground Storage Tank Trust Fund is a mechanism that helps tank owners pay for cleanup costs above the deductible amount.
To access the LUST Trust Fund, commercial tank owners are required to show that they have the ability to pay for any deductibles that may be related to their facility.
The LUST Trust Fund administers the NC Leaking Petroleum Underground Storage Tank Cleanup Funds and EPA grants, and oversees trust fund eligibility decisions and fund reimbursements.
When must I provide proof of financial responsibility?
Proof of financial responsibility must be presented when registering for an operating permit.
This process only needs to be completed once, not each time annual fees are paid.
The NCDEQ or LUST Trust Fund may ask for proof of financial responsibility at any time, in which case the documentation must be produced.
How can I provide proof of financial responsibility in North Carolina?
There are various ways to obtain proof of financial responsibility which may be combined, if necessary:
- Self-insurance –The NCDEQ website provides forms such as the Chief Financial Officer Letter for Self-Insurance to document the appropriate financial information to demonstrate the possession of sufficient funds to make any necessary payments. Only incorporated businesses may use self-insurance mechanism.
- Corporate Guarantee – Also found on the NCDEQ website is the Chief Financial Officer form. The Chief Financial Officer of the owner’s company will complete this form claiming the owner has the funds to meet the financial requirements. Only incorporated businesses may use the Corporate Guarantee mechanism.
- Insurance and Risk Retention Group – The owner obtains insurance from a third party provider to provide proof of the owner’s financial responsibility. The policy number and Insurer must be provided as proof of coverage.
- Surety Bond – The surety must assure the NCDEQ or LUST Trust Fund that the owner will be able to complete the transaction. If the owner fails to cover the cost of a cleanup due to insufficient funds, the surety will cover a portion of the cost.
- Letter of credit – The owner’s bank may provide proof of a line of credit that may be used to cover any costs.
What Coverage is Required for LUST Trust Fund Eligibility?
The owner must be able to ensure that sufficient funds are available and may be used to meet the assigned deductibles in the LUST Trust Fund.
The cost is the $100,000 third-party liability, typical $20,000 cleanup liability, and an additional $600 for each tank.
For example, if you have four tanks in North Carolina, the total amount of money necessary to assure financial responsibility is $122,400. The fund will cover the first $1 million, and there is a 20% co-payment for the responsible party after the first $1 million up to $1.5 million.
Commercial Fund Deductibles:
- $50,000 for leaks discovered from June 30, 1988, until December 31, 1991.
- $20,000 for leaks discovered from January 1, 1992, until December 31, 1993.
- For leaks discovered on or after January 1, 1994:
- a) $20,000 for commercial heating oil USTs used on premises.
- b) $20,000 for USTs that have installed leak detection, corrosion protection and spill/overfill prevention prior to the occurrence of a leak.
- c) $20,000 for existing USTs (those installed before December 22, 1988) if the department received notification before January 1, 1994, that upgrade or closure work will begin before July 1, 1994, be completed before January 1, 1995 and the release reported before January 1, 1995.
- d) Up to $75,000 for all other commercial tanks (a $20,000 deductible plus 40 percent of the costs between $20,000 and $157,500).
- $100,000 deductible for third-party liability
What happens if the owner closes the tank?
The owner will no longer have to provide proof of financial responsibility.
This documentation is the proof that the owner/operator can pay their share of corrective action and third-party liability claim costs if a release occurs. Demonstrating financial responsibility not only puts the owner or operator in compliance with Federal and State regulations, it also provides financial protection through the LUST Trust Fund in the event of an unexpected release from their underground storage tank system.
For more information regarding the financial responsibility for underground storage tank ownership in North Carolina, please check out the North Carolina UST guidelines and forms.
If you have any further questions regarding cleanup costs in North Carolina, please read How Do I Make a Claim for North Carolina Leaking Underground Storage Tank Cleanup Costs?