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This is intended to be a short description of Financial Responsibility, Fund Eligibility, and Fund Coverage for the TN UST program. It is not designed or intended to be an all-encompassing treatise on this subject, nor a predictor designed to fit all conditions pertaining to these topics.

FINANCIAL RESPONSIBILITY

State and Federal regulations require owners of a regulated substance tank to maintain Financial Responsibility for their tanks. This ensures that an owner is able to pay for cleanup of damage caused to the environment and third party claims should he/she be sued for personal injury or property damage. The amount of Financial Responsibility required is $1 million for marketers (retailers, resellers, and any UST system that handles 10,000 gallons or more per month) and $500,000 for non-marketers (non-resellers). An analogy would be the law that requires motorists to be financially responsible if they are at fault in an automobile accident.

Tank owners can use one or more of several mechanisms available to meet financial responsibility requirements. One mechanism available to Tennessee tank owners is a state funding mechanism. The State Fund, like an insurance policy, may be used to meet part of the tank owner’s financial responsibility obligation. Like insurance, there is a "deductible" or portion for which the tank owner is responsible. The State Fund is not an automatic or guaranteed entitlement once a tank is registered and fees paid.

FUND ELIGIBILITY

For Fund Eligibility, Two Requirements MUST Be Met!

In the insurance industry, an applicant applies for a policy, and if underwriters consider the applicant insurable, a premium is accepted and a policy issued. Thus the applicant becomes the insured. The insured is now eligible to receive payment should he have a claim with the insurance company. Likewise, in order to qualify for participation in the State Fund, certain conditions must be met. Meeting these conditions is considered establishing Fund Eligibility. Establishing Fund Eligibility is a function of two criteria:

  1. Proper (and timely) tank registration, and
  2. Proper (and timely) annual tank fee payment.

If these two conditions have been met, Fund Eligibility for the location where these conditions were met, is established.

The Tennessee Petroleum Underground Storage Tank Act took effect July 1, 1988 allowing one year for owners to register their tanks. LEGAL registration for tanks in the ground on 7/1/88 had to occur by June 30, 1989. The Act further required owners of tanks installed after 6/30/89 to notify the UST Division fifteen days prior to installation. Owners are required to submit a notification form within fifteen days of putting the tank into service. Tanks not meeting these requirements have not met the criteria for proper registration of their tanks.

The second criterion for establishing Fund Eligibility is timely fee payment. The law says the State Fund is available to owners who have paid the required tank fees, but it DOES NOT SAY State Fund eligibility is automatic or guaranteed when fees are paid. The law further specifies annual tank fees. UST Fee rules establish fee payment schedules for each county in the state. Owners of tanks installed after 6/30/89 are required to submit annual tank fees with tank registration forms. In the insurance industry, the applicant generally submits a premium payment with the application. In the same manner, tank fees must be paid before the State Fund is obligated to provide any assistance. One significant difference is that the law requires tank fee payment whether or not a site is Fund Eligible. Failure to make timely fee payment is failure to establish Fund Eligibility. In addition, the fee collection procedure provides the mechanism for Loss of Fund Eligibility, in the event that it was established properly.

In addition, Fund Eligibility must be maintained, by continuing to have certain conditions met. A tank owner who has properly established Fund Eligibility and paid fees in a timely manner probably has maintained Fund Eligibility. In the insurance industry, that usually means continuing premium payment. The company provides insurance as long as the insured keeps the policy in force by keeping premiums paid.

Loss of Fund Eligibility (LFE)

An insurance company will cancel a policy for nonpayment of premium. They can also cancel a policy for other reasons, and most notify their insureds prior to taking such drastic action. Likewise, the state must issue a "notice of cancellation" to fund eligible tank owners before a site suffers Loss of Fund Eligibility. This procedure is described in Rule 1200-1-15-.09(5) and must be followed by the State in order for Fund Eligibility to be "revoked" for a location. This same procedure for "revoking Fund Eligibility" must be followed regardless of whether the offense is failure to pay fees, failure to maintain substantial compliance, or failure to maintain or submit proper records. This procedure always provides a proper notice of consequences and a time frame for the tank owner to resolve whatever discrepancy or noncompliance that invoked the LFE procedure. This procedure is designed such that a site does not lose Fund Eligibility without the state making considerable efforts to make tank owners aware of what is happening and the consequences. The insurance industry analogy would be the company providing notice to the insured that his policy will be cancelled 30 days from now and he should seek replacement insurance.

Once a site loses Fund Eligibility, the rules require a tank owner to provide an alternate means of meeting the Financial Responsibility requirements. The owner must either use another of the financial assurance mechanisms OR Reestablish Fund Eligibility for the location. Any releases that occur while a site is not Fund Eligible can NOT receive assistance from the State Fund. In 1990 the Division received Board approval of it’s "Site Check Policy" as a condition of reestablishing lost Fund Eligibility. In part, this policy required owners to conduct a site check at the location to prove that there was no contamination. (The other conditions were resolution of any tank registration issues, payment of all past due tank fees, and paying any fines or civil penalties assessed as the result of violations.) In 1995, the Division enacted rules which replaced the site check policy and provided means for owners to reestablish Fund Eligibility as well as a means for owners who HAD NEVER established Fund Eligibility to do so. Those methods are described in 1200-1-15-.09(5). The insurance analogy would be if your health insurance policy lapsed, the company might require you to have a medical examination prior to their reinstating your policy.

FUND COVERAGE

Fund Coverage is often confused with Fund Eligibility. Here are two ways to help keep the two concepts straight.

  • Fund Coverage is a subset of Fund Eligibility.
  • A site can have Fund Eligibility and not have Fund Coverage, but it cannot have Fund Coverage without having Fund Eligibility.

An insurance industry example would be a Homeowner’s Policy. If a homeowner has a policy, he has "established" his eligibility to file a claim if he has a loss. He "maintains" his right to file a claim by keeping his premium paid. However he may have losses which his policy does not fully "cover", for example replacement cost for theft of a valuable fine art object. Or he may have a loss, which the policy excludes under its limitations, such as losses where the homeowner was negligent. So although the homeowner had "eligibility" (policy in force), his policy may not provide "coverage" for certain losses.

The Division determines "coverage" for a release with respect to substantial compliance with the technical regulations. The requirement that tank owners be in substantial compliance has been a state regulation since 1990. Rule changes in 1998 said that if a tank had a release after April 20, 1998, and the tank owner could not document that release detection was being performed in accordance with the rules, the State Fund was not obligated to pay for corrective action costs from that release. This would be similar to the negligence exclusion in the insurance example. A tank owner who fails to practice proper release detection in accordance with the rules could be said to be negligent, thus forfeiting "coverage" for a release from an otherwise Fund eligible location.

The rules say that releases occurring after December 22, 1998 from tanks that DID NOT meet the operating requirements for new or upgraded tanks would not be "covered". In this case, the rule excludes coverage for releases from tanks operating in violation of the law, the same way a private company will not pay for damages resulting from policy owner negligence.

When presented with an ‘Authorization for Fund Eligibility’ form and notification of a release, the Division makes two determinations. First, it determines if the site in question is fund eligible. Next, it determines if the release is covered. The tank owner is advised of the determinations and may appeal either determination if the owner disagrees with the findings. Once a release has occurred, it is too late to establish fund eligibility or ensure fund coverage for a location. A prudent tank owner should determine that he has met the conditions for satisfying fund eligibility and do everything necessary to be sure he achieves substantial compliance with release detection and upgrading rules so that he does not jeopardize coverage for a future release.