Commercial Storage Tanks: Private Insurance versus State Fund
By Michelle Huitt-Megela, Assistant Vice President
With only a couple of exceptions, most states have a State Fund that the owners of underground storage tanks can participate in to meet Financial Assurance requirements. This regulation refers to the limits of insurance the insured must carry in the event of a release as mandated by each state.
So how do you know if the fund is right for your client?
Most states offer the required amount of coverage to be compliant with the Financial Assurance requirements, but not much beyond that. Generally, no state offers defense coverage and very few offer third party liability. The goal of most states is to address Financial Assurance and First Party Clean Up, so third party Liability is typically not offered. This could leave your insured in a dilemma if in fact their release has contaminated adjacent properties. Depending on the size of the spill or length of time it remained undetected, your insured’s release could migrate offsite, making them responsible for the clean-up of a third party property.
Private insurance not only provides for clean up in the event the insured is responsible, it provides defense. Additionally, states do not offer the option of higher limits, which means the insured’s exposure, may not be fully covered and limit needs are often times not sufficient.
Last but not least, most State Funds are offered on a reimbursement basis, which means your insured could have large out of pocket expenses while waiting for the claim to be submitted and approved by the boards that govern the state funds. There are a couple of states that have a loan program in place of the fund, offering low interest rate loans. State Fund deductibles can range from $2,500 to $100,000, depending on the date, release, or the number of tanks.
In comparison, a private Storage Tank Pollution Liability policy can offer a range of limits, deductibles, and coverages. Once a release is confirmed, claims are typically paid as soon as the insured’s deductible has been met; making the insured’s out of pocket expenses much more manageable. First Party Clean up, Third Party Liability, and Defense are always quoted and optional coverages, such as Business Interruption, Waste Transportation, Non-Owned Disposal Site Coverage, and other enhancements can be offered where applicable.
It is important to review all options with your insured so they can make an informed decision based on their current needs. Whether the insured chooses the State Fund or private insurance, conducting an annual review is a critical part of understanding your clients’ operations and offering the best service possible, while also addressing your own E&O concerns.
For more information on Storage Tank Liability, contact your PartnerOne Environmental representative.