ILLINOIS POLLUTION CONTROL BOARD
July
27, 1989
IN
THE
MATTER
OF:
UST FINANCIAL ASSURANCE
)
R89-4
USEPA REGULATIONS
(10/26/88)
FINAL
ORDER.
ADOPTED RULES
OPINION
OF
THE
BOARD
(by J.
Anderson):
By
a
separate Order,
pursuant
to Section
22.4(d)
of the Environmental
Protection Act
(Act), the Board
is
to adding financial
responsibility
requirements
to the UST underground
storage tank
regulations.
Section 22.4 of the Act governs adoption of
regulations establishing
the
RCRA program
in
Illinois.
Section 22.4(d) provides for
quick
adoption of
regulations which are
“identical
in substance’t
to
federal
regulations.
Section
22.4(d) provides that Title VI~of the Act
and Section
5 of
the
Administrative Procedure Act
(APA)
shall
not
apply.
Because this rulemaking
is
not subject
to Section
5
of the ,IWA,
it
is not subject
to
first notice or
to second notice review
by the Joint Committee
on Administrative Rules
(JCAR).
The federal UST rules are found
at
40 CFR
280.
This rulemaking
updates Illinois’ UST rules
to
add
financial
responsibility
rules
to
the UST
program, corresponding
to USEPA financial
responsibility rules
adopted
at
53
Fed. Reg. 43370,
October
26,
1988.
PUBLIC COMMENT
The Board
adopted
a
Proposed Opinion
and Order
on April
6,
1989.
The
Proposal appeared
on
May
5,
1989,
at
13
Ill.
Rey.
6861.
The Board has
received comment only from other State agencies,
as
follows:
PC
1
Illinois Environmental
Protection Agency
(Agency),
April
24,
1989
PC
2
Secretary of State, May 18, 1989
PC
3
Administrative Code Unit, June
5,
1989
HISTORY
OF UST RULES
The UST rules
are contained
in
35
Ill.
Adm. Code 731.
They were adopted
and amended
as
follows:
The
Board
acknowledges
the
contributions
of
florton
Dorothy
of
the
Scientific/Technical
Section
in
drafting
the
Opinion
and
Order.
101—371
-2-
R86—1
71
PCB 110, July
11,
1986;
10 Iii. Reg.
13998, August
22, 1986.
R86—28
75 PCB 306, February
5,
1987;
and
76 PCB
195, March
5,
1987;
11
111. Reg.
6017, April
3,
1987.
Correction
at
77 PCB 235,
April
16,
1987;
11
Ill. Reg. 8684,
May
1,
1987.
R88—27
April
27, 1989;
13 Iii. Reg. 9519, effective June 12, 1989.
On April
27,
1989 the Board adopted regulations which are
identical
in
substance to the major revisions to the USEPA UST rules which
appeared at
53
Fed. Reg.
37194, September 23,
1988.
The Board separated
the financial
responsibility rules
from the September 23
rules
in order
to avoid delaying
adoption
of the
latter.
Addressing the financial
responsibility rules
separately appears
to
be more consistent with the USEPA procedure.
Until
R88—27 the UST rules
were addressed
in
the RCRA update Dockets.
The Board
separated the September 23, 1988 rules from the RCRA update process
because
of the
size and timing
of the rulemaking,
and because
of the
desirability of developing
a separate mailing list for persons
interested only
in tanks.
The Board will consider recombining the RCRA and UST updates after
initial adoption
of the
new program.
FIRE MARSHAL RULES
As
is discussed
in greater detail
below,
the legislation requires
that
both the Board
and Office
of
the State Fire Marshal
adopt equivalents
of much
of the USEPA UST
rules.
The Fire Marshal’s rules
are contained
in
41
Ill.
Adm. Code
170, along with preexisting
rules adopted prior to
the USEPA
equivalent
rules.
They were adopted, amended and corrected
in
the following
actions:
13
Ill.
Reg.
5669,
effective April
21,
1989.
13
Ill.
Reg.
7744,
effective
M~y
9,
1989.
13
Ill.
Reg.
8515,
effective May
19,
1989.
13
Ill. Reg.
8875,
effective May 19,
1989.
The technical
standards were adopted
at
13 Ill. Reg.
5669.
The financial
assurance requirements were incorporated
by reference at
13
Ill.
Reg.
8515.
The other actions were corrections.
STATUTORY AUTHORITY
The February
2,
1989 Opinion
in R88-27
included
a
lengthy discussion
of
Section 22.4(d)
of the Ac~,and other provisions of P.A. 85-861,
the statutory
basis
of the UST program.
The
Board will
reference that discussion here,
and
will
only sunnarize
it
in. this Opinion.
1This was actually Section 22.4(e)
in P.A.
85—861.
Conflicting numbering
in various Acts has been resolved
in favor of Section 22.4(d).
(1988
Supplement
to Ill. Rev. Stat.
ch. 111
1/2,
par. 1022.4(d).
101—372
—3—
Section 22.4(d)
of the Act
requires
the Board to adopt
regulations which
are “identical
in substance” with USEPA’s UST regulations.
Ill. Rev.
Stat.
1987,
ch.
127
1/2,
par.
154(b)(i)
requires the Office
of
the
Illinois
State
Fire MarshAl
to
adopt
regulations which are
also to
be “identical
in
substance”~to
the same USEPA UST regulations.
While the Fire Marshal
is
to
adopt
regulations only through “corrective action”, the Board
is
to
adopt
the
entire
set
of rules.
In R88—27 the Board
adopted
regulations which,
among
other
things,
reflect the delineation between
regulations before and after
“corrective action”.
The
financial
responsibility
regulations
bridge
the
corrective
action
gap.
Operators
are required to provide
financial
assurance immediately
or
in
the
near
future.
This
will
mainly
be
for tanks which are
not known
or
suspected to
be
leaking.
However,
if
a
tank leaks,
and
the operator
fails to
take sufficient corrective action,
the financial
institutions will
pay funds
for corrective action which will
be under the direction of the Agency.
Thus
the
Fire
Marshal
will
be responsible for receiving the financial
assurance
documents,
but
the
Agency
will
be
the
recipient
of
any
funds.
Ill.
Rev.
Stat.
1987,
ch.
127
1/2,
par.
154(b)(ii)
allows
the
Fire
Marshal
to adopt
“additional
requirements”.
Section
22.4(d)
of
the
Act
allows
the
Board,
upon
receiving
notice
of
such
requirement,
to
adopt
further
Board
requirements which
are “identical
in
substance”
to
the additional
Fire Marshal
requirements.
The R88-27
rules followed the
USEPA rules closely.
The Board
will
consider
adopting
“additional
requirements”
following
notice
from
the
Fire
Marshal.
HISTORY
OF FINANCIAL ASSURANCE RULES
The Board
has
adopted
two other
federally—derived financial
assurance
systems:
with
the RCRA hazardous waste
rules
in
35 Ill. Adm. Code 724.240 and
725.240
et
seq.,
and
with
the
UIC
underground
injection
control
rules
in
35
ill.
Adm.
Code
704.210
et
seq.
The
UST
financial
responsibility
requirement
is
closely
linked
with
these
programs
at
the
federal
level.
The
UST
requirement
arises
out
of
the
same
federal
statute
as
the
hazardous
waste
rules,
the
Resource
Conservation
and
Recovery
Act.
Furthermore,
at
the
federal
level
the
regulations
are
explicitly
linked.
For
example,
40
CFR
280.95(b)(1)
pegs
the
financial
test
to
the
sum
of
the
financial
assurance
amounts
required
under the three
programs.
The complete history
of
the RCRA and UIC rulemakings
are contained
in the
most
recent
RCRA
update
(R88-16,
November
17,
1988;
R89—1,
proposed
May
25,
1989).
The following rulemakings were important
in the adoption and amendment
of
the
RCRA
and
UIC
financial
assurance
rules:
R82—19
53
PCB
131,
July
26,
1983;
7
Ill.
Reg.
13999,
October
28,
1983.
R85—23
70
PCB
311,
June
20,
1986;
10
Ill.
Reg.
13274,
August
8,
1986.
2The phrase
“identical
in substance”
has recently been defined
in Section
7.2
of
the
Act,
adopted
in
P.A.
85-1048.
10 1—373
-4-
R86—46
July 16 and August
14,
1987;
11
Ill. Reg. 13435.
R87-39
June 14, 1988;
12
Ill. Reg. 12999,
August
12,
1988.
R89-1
Proposed May 25, 1989;
13 Ill. Reg.
9661.
The RCRA hazardous waste financial assurance rules were originally
adopted
in R82—19, the UIC
financial
assurance
rules
in R85—23.
The RCRA
financial assurance
rules were recently amended
in R86-46 and
in R87—39.
These amendments
are closely related
to some of the
issues discussed below.
The Board
has also adopted, pursuant
to State
law,
closure
and
post-
closure
care
and
financial
assurance
requirements
for
non-hazardous
waste
landfills:
R84-22C
66
PCB 463;
November
21,
1985
As
is discussed
below,
the USEPA rules
include
a number of provisions
which need
to be
interpreted
in
light
of R84—22C.
STATE FINANCIAL RESPONSIBILITY REQUIREMENTS
The financial
responsibility requirements will
be
discussed below
in
detail.
These rules have
a
number of broad
issues
concerning the place
of the
financial
responsibility requirements
in State
law.
These concern
the State
laws which
govern the
financial assurance instruments,
State agencies which
regulate the
financial
institutions
and corporate guarantors,
and
the
possibility
of special
State financial mechanisms.
As
noted above,
Section 22.4(d) requires
the Board
to adopt
regulations
which are
“identical
in substance” with USEPA UST rules.
This term has
recently been defined
in Section 7.2 of the Act
in
a manner which codifies the
Board’s longstanding
intepretations of
it.
(See R85-23,
June 20,
1986,
70 PCB
311,
320;
R86-44, December
3,
1987,
pages
14 and
19.)
Generally
the
“identical
in
substance”
niundate
is
to adopt
the
verbatim
text
of
the
USEPA
rules
so
as
to effect
a program which
requi res the
same
actions
by
the same
group
of
affected persons
as
would the USEPA rules
if USEPA administered
the
program
in Illinois.
However, there are certain situations enumerated
in
Section
7.2
in which the Board
is
to depart
from the verbatim text
of the
USEPA rules.
Several
of these are relevant
to the
financial
responsibility
rul es.
Several
provisions
in
the USEPA rules
appear to
be
requirements
for
program approval
or directives from USEPA
as
to
the types
of rules
the states
are to adopt,
rather than “pattern”
rules which
the
states
are supposed to
adopt
verbatim.
For example, 40 CFR 280.94
restricts the use of
bonds unless
the Attorney General
has certified that bonds are
a legally valid
and
enforceable obligation
in
the state.
This appears
to be
a
requirement for
program approval.
For another example, 40 CFR 280.100 and 280.101
contain
“prescriptions”
and approval
requirements for
state insurance funds and
alternative financial
assurance mechanisms.
Section 7.2 of the Act also requires the Board
to modify the text as
101— 374
—5—
necessary to
accommodate the requirements
of
State law.
Several provisions
need
to
be
modified
to
correctly
state
the
requirements
of
State
law.
Indeed,
these
provisions may also be construed
as directives
from USEPA
to
insert the
correct State
law.
For example, 40 CFR
280.99
limits
letters
of credit
to
those from
institutions
“with
authority
to
issue
letters
of
credit
in
each
state where
used”,
and
which
are
“regulated
and
examined
by
a
state
or
federal
agency”.
In Illinois,
as determined
in R84—22C, this means
that
the issuing
institution
must
be
regulated
and
examined
by
the
Illinois
Commissioner
of
Banks
and Trust Companies.
These complexities
arise out of the nature
of the financial assurance
mechanisms.
Although
the
use
of
the
mechanisms
is
mandated
by
federal
law,
the
mechanisms
themselves
are
a
matter
of
state
law.
Operators subject to
the
federally-mandated
environmental
regulations
must
contract,
pursuant
to
state
law, with financial
institutions
which
are
created
and
mainly
regulated
under
state
law,
and which
are not themselves usually the subject
of
environmental
regulation.
This
is
further complicated
by balancing the
need for
a national
financial
assurance
system
versus
the
necessity
for
state administration
and
enforcement,
given the national
policy
of delegating
to the states.
Many of
the
issues
have
been
discussed
in
connection
with
the
RCRA
and
UIC
financial
assurance
rules,
most
recently
in
R87—39
and
tne
R89—1
Proposed
Opinion.
ILLINOIS
REGULATORY
AGENCIES
The State agencies which
regulate the financial
institutions and other
providers include:
Commissioner of Banks
and Trust Companies;
Department
of
Insurance;
and, Secretary of
State, Corporation Division.
The Board
sent
each
a
copy
of
this
Opinion
and
Order,
together
with
a
cover
letter
specifically
requesting
comment.
The Board
received
a
response from the
Secretary of
State
(PC
2), which
is discussed below.
CHOICE
OF
LAW
AND
JURISDICTION
IN
MULTISTATE
SITUATIONS
In R86—46 and R87-39 the Board has addressed multistate problems with
respect
to hazardous waste financial
assurance.
The following
is
a
hypothetical
which
illustrates
some
of
the
problems
with
multi-state
financial
assurance
as
apparently
contemplated
under
the USEPA rules.
Suppose
a Delaware corporation, with headquarters
in
New
Jersey, operates
a
tank
located
in
Illinois.
The
financial
institution
is
a
Nevada
corporation
with headquarters
in Connecticut.
The financial
assurance documents
are
drafted
at
the financial
institution’s office
in New York,
and
mailed
to the
operator’s corporate headquarters
in New Jersey.
Whose law applies?
Which
State
has
jurisdiction
to
decide?
The
Board
suggests
that
the
following
are
general
legal
rules which govern the choice of
law governing financial
assurance
documents.
The financial
institution
must have the
power
to
issue the document.
This mainly depends
on the law of the
state
of
incorporation,
and
the terms
of
the
charter
or
articles
of
incorporation.
In
addition,
the
institution
needs
to
be
licensed by
at
least
some state
to engage
in
the activity.
The validity
of
a corporate guarantee
is
similar.
The corporation
must
101—375
-6-
have the power to make the guarantee under the laws of the state of
incorporation, and under
its articles of incorporation.
Generally the validity
of
an
instrument
is
governed by the law of the
state
in which the instrument
is executed.
However, the parties can agree
that the law of another state governs
the instrument.
There may be
limitations
on
this, especially
if the
instrument
violates some law of the
state
in which
it
is executed.
The financial
institution certainly has
to be licensed
in the
states
in
which
it
has its offices.
It
is not clear whether licensure
is
required
in
all
states
in which
instruments
are executed or
in which tanks
are
located.
(53 Fed.
Reg. 43353, October
26,
1988)
It
is arguable, but
not certain, that
a business entity which guarantees the debts
of
an operator
is
“doing
business”
in the operator’s State,
and would therefore have to register with
the proper State authority, the Secretary of State
in illinois.
(PC 2)
There are constitutional
limitations
as
to where the providers of
financial assurance
can be sued.
Licensing and registration would
allow the
financial
institution
or guarantor to
be
sued
in the State
in
which the
facility
is
located.
Otherwise, they can generally be
sued
in the
state
courts
or U.S. District Courts
in the
states
in which they are organized or
do
business.
There are ways to obtain
jurisdiction
in
Illinois, but
none appear
to
be generally applicable.
This may not
be important to USEPA, which
maintains
a presence
in
all
states.
However,
for Illinois
it
is
important to
be able to sue in
Illinois courts pursuant to Illinois
law.
Otherwise,
the
State would have to
have experts
on the
financial
laws of many states
to
review documents,
and would
have
to set up
regional collection offices around
the country.
CERTIFICATION BY THE ATTORNEY GENERAL
~OCFR 280.94(b) allows
an operator
to use
a
corporate guarantee
or
surety
bond
only
if:
the Attorney(s) General
of the
state(s)
in which the
...
tanks
dre
located
has
(have) submitted
a written statement to the implementing
agency that
a
guarantee or surety bond
is
a legally valid and enforceable
obligation
in that state.
In addition,
40 CFR 281.25 and
281.37 require
an Attorney General’s statement
that
all
of
the mechanisms
are valid
and enforceable.
(PC
1)
The Board notes
in
passing that the specific certification requirement
probably misses the point.
As discussed above,
the validity of the guarantee
or
bond
is probably governed by the
law of the State
of
incorporation or
chartering
of the guarantor or
surety,
and the law of
the place where the
guarantee or
bond
is executed,
rather than the law of
the places where the
tanks
are
located.
The Board
faced
a
similar question with respect
to Attorney General
certification of hazardous waste corporate guarantees
in R86—46, R87—39 and
R89—1.
There are
a number
of ways of
interpreting this
requirement.
For
the
101—376
—7—
reasons discussed above,
the validity of
the financial mechanisms under the
USEPA rules may be determined under the laws of several
states.
If the
certification requirement
is
asking the Attorney General
of Illinois to make
a
generic certification at the time of application
for program approval,
it
is
asking for
a certification that mechanisms
are valid under the
laws of other
states.
It does not appear
to
be within the authority of the Illinois
Attorney
General
to
make
such
a
certification.
The
Board
discussed
a
number of other interpretations
in R86-46 and R87—
39.
One possibility would be
to
limit multistate
combinations to those
involving a
small
number
of neighboring states,
and ask the Attorneys
General
in each to certify.
Another possibility would be
to
require each operator
using
a multistate combination
to obtain
individual Attorney General
certifications with respect
to each of the
states
involved
in the
combination.
The Board
rejected these possibilities as unworkable.
USEPA
rejected the latter possibility
in
the most recent RCRA action,
as discussed
in R89—1.
The Board
instead
limited hazardous waste
corporate guarantees
to
those which were governed entirely by Illinois law,
so as
to allow the
Illinois Attorney General
to
certify alone that the guarantees were valid and
enforceable.
The
Board
received
no
adverse
comment
to
this
interpretation.
The
Board
proposed
to
follow
the
same
course
in
this
matter,
and
received
only positive comment.
(PC
1,2)
As
is
discussed
in
greater
detail
below,
the
Board
has
limited financial
mechanisms
to those which are governed entirely by
Illinois law.
Financial
institutions will
have to obtain approval from
Illinois regulatory authorities before they can
issue financial
assurance
which will
be
acceptable under the
rules.
Corporate guarantors will
have to
register with the Secretary of State.
And, the guarantors and trustees will
have to agree that Illinois law governs.
SHOULD FINANCIAL ASSURANCE DOCUMENTS BE
DEPOSITED WITH THE
STATE?
40 CFR
280.106, discussed below,
appears
to contemplate that the operator
keep the financial
assurance documents until
after
a
release.
This
is much
different than
the hazardous waste
and UIC
financial assurance
rules,
and the
Part 807
rules
adopted
in R84—22.
USEPA indicates that the
rules are written
this way out
of concern that
the states may not be able administer
a
system of
receiving financial
assurance documents, because
of the large number
of
tanks.
(53 Fed. Reg. 43357, October 26,
1988)
However,
there
is
a
question
as
to whether this adequately secures
the State under State
law.
Consider
a
familiar example.
Most banks
require that
a homeowner have
fire
insurance before they will
lend money to buy
a house.
Most require
evidence
of
insurance before they will
loan the money.
The federal
rules
place the State
in
the position
of
a bank which
lends money,
requiring
evidence
of
insurance within
30 days after the house burns
down.
If the owner
didn’t get the
insurance,, the bank can
sue him,
but probably won’t be
able to
collect,
since the homeowner will
likely
be bankrupt.
With
the UST rules
there
is also
a possibility
of fraud
and collusion
between the
financial
institution
and the operator.
Suppose the operator
establishes
a trust
fund
at
a bank which
is also his business
and personal
lender.
A
release occurs which
is likely
to
bankrupt the operator’s
101—377
-8-
business.
The
operator
and
bank
would
have
an
incentive
to
destroy
the
trust
documents,
and
apply
the
proceeds
of
the
trust
to
the
operator’s
other
debts
prior
to
the
bankruptcy.
Since
the
State
never
received
copies
of
the trust
documents,
it
would
have
no
way
of
proving
that
the
trust
ever
existed.
Beyond
that,
it
would
have
to
guess
which
financial
institution
provided
the
financial assurance before
it
could even sue and attempt discovery of records.
There
is also
a question
as
to whether the State acquires any legally
enforceable rights
in the absence
of delivery of
the documents.
For example,
some of the rules make the State
the
beneficiary
of
an insurance policy.
Generally the beneficiary of such
a policy acquires no
rights absent
notification:
the insured and insurer can agree
to modify
the terms without
consulting the beneficiary.
Although the policy has provisions limiting
cancellation,
the parties
to the contract would
be free to modify these
provisions.
As
a practical matter, the beneficiary cannot enforce its rights
unless
it knows they exist
and has
a copy of
the policy.
40 CFR 280.106(c) allows the State
to require delivery of the financial
assurance documents
to
the
State.
The Board believes that such delivery
is
necessary to
adequately secure
the State,
and therefore has
crafted
a rule
pursuant to Section 7.2(a)(3)
of the Act.
(PC
1)
STATE MECHANISMS
The USEPA rules allow for two types
of state mechanisms.
40 CFR 280.100
allows State mechanisms
in general.
40 CFR 280.101
allows
a State fund for
financial
assurance.
(53 Fed.
Reg.
43354, October
26, 1988)
The Board has
adopted
in this proceeding
no rules pursuant to these prescriptions.
Section 7.2 of
the Act allows the Board
to craft rules meeting this type
of
federal prescription only with respect
to essential
parts
of the program.
The state mechanisms are
not essential
to the UST program.
They
are not
required for program approval
and not necessary for the program to function.
The
Fire Marshal may adopt State mechanisms.
If
so,
the Board may
consider adopting these
pursuant to Section 22.4(d), following notification
from the Fire Marshal.
Section 22.18 of the Act arguably sets up the Underground Storage Tank
Fund as
a
State Fund which could
be used to meet a portion of the financial
responsibility requirement.
However, the fund cannot
be used to pay third-
party damage claims, and hence would
not
reduce the
total
amount
of financial
responsibility, which
is
required
to meet either clean-up costs
or damages
under Section
731.193.
In that this use of the
fund ends in
1991,
it
is best
interpreted
as
an
interim measure
intended to provide funds
for tanks which
are unable
to obtain financial
assurance because they are found
to be
leaking
at
the time they
first apply.
Legislation which may create
a State fund
was
recently
passed
by
the
General
Assembly,
in
H.8.
2732 and S.B.
64,
and
is awaiting action
by
the
Governor.
Any regulatory action concerning this legislation
will occur
in
a
future Docket.
101—378
-9-
CONDITIONS
OF
DEFAULT
The
conditions
of
default
are
discussed
in
detail
below
in
connection
with Section 731.208.
The
financial
responsibility
system
provides funds
for corrective action
and third party liability claims
in the event there
is
a release
from the tank
and
the operator
is
unable
or unwilling to provide corrective action
and pay
damages.
The
release does
not necessarily
have to
be caused
by
a violation of
the regulations.
And, the financial
assurance
is
drawn
on only
if
the
operator fails
to
take action himself.
Rather than directly ensuring
compliance with
the regulations, the
financial
assurance
is mainly directed
at
providing
a
pool
of money
in the event the operator
becomes
insolvent.
The
insolvency could
result from the expenses associated with
a
release, or
it
could
be
a
simple business
failure.
FINANCIAL ASSURANCE FORMS
The USEPA rules
set out
the forms
at length.
Section
3.09 of the APA
excludes
standardized
forms
from
the
definition
of
“rule”.
The
Code
Unit
prefers
that
forms
not
be placed
in rules.
At
a minimum the forms would have
to
be moved
to appendices,
since
it would
be
impossible to
comply with some
format requirements with these forms.
in
the hazardous waste and UIC rules, the Board
incorporated the USEPA
forms
rules
by reference,
and directed
the Agency
to promulgate forms
based
on
the USEPA
forms, with such changes
as are necessary under State
law.
(35 Ill.
Adm. Code 724.151).
In R84-22,
the Board promulgated forms,
in
an Appendix to
the rules,
to
be used until
the Agency forms became
available.
In this Docket,
the Board proposed to
incorporate the USEPA forms
by
reference,
and
to
require
the
operator
to
prepare
the
forms
based
on
the
federal
rules,
with
required
changes
in
wording.
However, the Board
indicated
possible problems with this approach, and requested comment.
The Agency contended
in R84-22,
and
in
connection with the hazardous
waste
rules,
that
it
is
impossible
to administer the financial
assurance
system with operators preparing forms
based
on the rules, whether
federal
or
state.
The Agency
insists
on the
use of preprinted forms.
If
operators were
left
to
prepare
their
own
forms,
the
Agency
would
be
forced
to
compare
them
word
by
word
with
the
rules
to
assure
that
the documents conform with
the
rules.
Typographical
errors could
render the legal
obligations
unenforceable.
Worse,
operators
could
deliberately
introduce
subtle
changes
in
wording
which
would
benefit
them
in
the
event
of
an
occurrence.
The Agency
has indicated
in
this Docket that
it
prefers
a system with preprinted
forms
to
be filed with the State.
(PC
1)
This appears
to
be consistent with USEPA’s
intent,
in
that USEPA
has
indicated that
it
expects the states
to make minor
changes
in wording
of the instruments to
assure their validity under
state
law.
(53
Fed. Reg.
43340,
October
26,
1988)
The Board has therefore required
the use of
preprinted forms,
which the Fire Marshal
is
to prepare based
on the
USEPA forms, which are incorporated
by
reference.
101—379
-10-
GENERAL ORGANIZATION
OF THE RULES
The
amendments
add
a
new
Subpart
H
to
the
rules
adopted
in
R88—27.
Although
there
is
actually
very little
cross—referencing,
to
be
completely
understood
the
rules
need
to
be
read
alongside
the
Order
in
R88-27.
The
following
Sections
are
numbered
from
the
USEPA
rule
according
to
a
simple
correspondence
rule:
USEPA
Section
number
280.90
Insert
zeros
to
right
of
decimal
point
so
there
are
3
digits
after
decimal
280.090
Add
constant
451.100
Section number
in
35 Ill. Adm. Code
731.190
In the following discussion the Board will
avoid unnecessary
repetition
of the
CFR
and
Ill. Adm. Code numbers
for Sections.
In some cases
a
reference to the
Board Section number should
be
taken
as
a
reference
to the underlying CFR
number,
and vice versa.
DETAILED DISCUSSION
Section 731.190
This
is
an applicability Section, which
is drawn from 40 CFR
280.90,
as
adopted
at
53 Fed. Reg. 43370, October 26, 1988.
The financial
responsibility
requirements
do not apply to
UST’s which are excluded
or deferred from
regulation under Section 731.110(b)
or
(c),
or
to State
and federal
entities.
(PC
1)
Units of local
government
are subject
to the
financial
responsibility
requirement,
although the date
is delayed.
Section
731.190(a)
provides
that
financial
responsibility
is
required
only
for
petroleum
UST’s.
Hazardous
substance
tanks
are
not
required
to
provide financial
responsibility.
Section
731.191
This Section sets dates
through October
26,
1990,
for compliance with
the
financial
responsibility requirements.
One of these dates
has
already
passed.
Operators with 1000 or more tanks,
or with
a tangible net
worth
in
excess
of
$20 million, were required to provide financial
responsibility by
January 26,
1989.
In
Illinois
these operators
faced practical
problems
as
to
how
to comply with this requirement
in the absence
of
an
authorized agency
with regulations and
forms
in
place.
The Board
has therefore made the
requirement
immediately effective
as
a Board
rule upon filing of
these
rules.
(PC
1)
This
is not intended
as delaying the effective date of the
federal
rule
in
Illinois.
Persons who missed this date remain
subject
to
federal enforcement.
101—380
—11—
It
is
arguable that even the immediately—effective requirement would
be
unduly
burdensome.
However,
the
affected
public
has
had
notice
by
way
of
the
federal
rules,
and
by
way
of
the
proposal,
well
in
advance
of
the
effective
date.
40 CFR 280.91(c) requires
financial
responsibility from “local
government
entities”
by October
26,
1990.
The Board
has substituted the Illinois term
“units
of
local
government”, which
is
defined
below.
Section
731.192
Definitions
The introductory paragraph, and
several definitions, provide that terms
“shall
have”
the meanings given.
This has
been edited
to
“have”.
“Shall”
is
surplusage,
in
that
there
is
no
future
date
associated
with
the
definitions,
and
there
is
no sanction
if
the terms
fail
to take the meanings
given.
The
Board
has generally restricted
the use of
“shall”
in
the
rules
to
situations
where
a
person
“shall”
do
something,
or
else
a
sanction
will
happen.
The
definition
of
“accidental
release”
provides
that
it means
a
release
which
results
in
a need for corrective action
“and/or” compensation
for bodily
injury.
The
Administrative
Code
Unit
discourages
the
use
of
“and/or”,
in
normal
English
“A
or
B”
may
mean
“A
or
B
or
both”.
The
Board
has
followed
the
Code Unit’s convention,
and shortened “and/or”
to
“or”.
In these
rules,
if
the Board means
“either A
or
B
(not both)”, the Board will
so
specify.
The
next definition
is
“bodily
injury”.
This
is
related
to
the
definition
of “property damage’, which
is
discussed below.
Section
731.193
requires operators
to have financial
responsibility “for taking
corrective
action
and
for
compensating
third
parties
for
bodily
injury
and
property
damage caused
by accidental
releases.”
The terms
“bodily injury”
and
“property damage” therefore define the scope
of
a
portion
of the financial
responsibility
requirement.
They
will
also
appear
in
the
text
of
insurance
policies
used
to
satisfy
the insurance requirement.
The USEPA definition
of “bodily
injury”
is that
it
has the meaning given
by
“applicable state
law”.
Since these
rules will
apply
to tanks
in the
ground
in
Illinois,
the
applicable
state
law will
always
be
Illinois
law.
(53
Fed.
Reg.
43334,
October
26,
1988)
However,
so
far
as
the
Board
has
been
able
to determine, there
is
no definition
of these terms
in Illinois law.
The
Board requested
comment from the Department of Insurance,
but
received
no
response.
The
effect
of
adopting the USEPA definition
in Illinois would
be
equivalent
to
leaving these
terms undefined.
However,
these
definitions are
essential
to the
UST program.
If the terms are
not defined,
the
insurers
might
issue policies covering “bodily injury” and “property damage” with
restrictions
which
would
defeat
the
purpose
of
the
financial
responsibility
requirement.
For
example,
an
insurer
might
limit
“bodily
injury”
to
one
which
is manifested within
a
short
period
of time,
or
limit
“property damage”
so
as
to
not
compensate
for
loss
of
use
of
property
which
is
rendered uninhabitable
by pollution.
If these terms
are not defined
in
the
rules,
the State would
be
obliged
to
accept
the
policies
as
meeting
the
regulatory
requirement.
101—381.
—12-
Since these definitions are essential to the program, Section 7.2 of
the
Act requires
the Board
to craft
a definition to
fill
the hole.
In the preamble USEPA refers
to the definitions
of these terms
as
prescribed
by
the
Insurance
Services
Office
(ISO),
a
private
entity
which,
among
other
things,
drafts
standard
forms
used
by
many
insurance
companies.
(53
Fed.
Reg.
43333,
October
26,
1988)
Commenters
urged
USEPA
to
adopt
the
ISO
definitions
so
as
to
make
the
regulations
conform with
insurance
industry
practices.
USEPA
refused
to
do
so,
and
instead
referenced
state
law,
out
of
fear
that
some
states
would
have conflicting definitions
in their insurance
regulations.
In
such states confusion would have resulted from having the
ISO
definition
in
the UST rules,
and
an insurance regulatory definition
in
the
policy.
However, since
Illinois has no definitions
in
its
insuiance
regulations,
no
conflict
should
result
from
using
the
standard
industry
terms
in
the
text
of
the
rules.
The
Board
has
therefore
used
the
ISO definitions
of
“bodily
injury” and “property damage”.
(PC
1)
The Board
has
reviewed
the text
of these definitions, and
finds
no
problems with the language of these two definitions
themselves.
The ISO definition
of
“property damage” depends on two other ISO
definitions:
“property damage”
includes
loss of use
of
property
because
of
a
“pollution
incident”, which
includes
a
release, provided such release results
in “environmental
damage”.
The Board
has adopted definitions
of
these ISO
terms also.
However, there may be problems associated with these terms.
First, the terms
are not specifically directed
at
storage tanks.
Second, the
terms may conflict with the USEPA terms
“occurrence”
and
“accidental
release”.
The ISO definition
of
“environmental
damage” requires that
a release
be
“injurious”.
In
the context
of
financial
responsibility for petroleum UST’s,
this limitation
is unnecessary.
Any release
of petroleum from
a UST
is
“injurious”.
There
is
no reason
to leave
the insurer the option
of arguing
that
a release
of gasoline to
groundwater
is not “injurious”
so long
as you
don’t
try to drill
a well
or smoke
in the basement.
The
ISO definition
of “pollution
incident”
is much broader than needed
for UST coverage,
including releases of
caustics and wastes.
However,
it
does
not specifically include release
of petroleum.
This would
leave insurers
free
to argue
that the coverage applies
to
releases of
“bads”, but not
“goods”
such
as
gasoline.
USEPA specifically
rejected the ISO definition
of
“pollution incident”,
instead retaining its definitions
of “occurrence”
and “accidental
release”.
However, USEPA added
language specifically
authorizing the use of alternative
terms,
including the
ISO terms,
in policies.
(53 Fed. Reg. 43334, October
26,
1988)
Of course, this tepds
to defeat the
goal
of
having
the regulatory and
policy language
the same.
The
Board
has
resolved
these
problems
by
adding
the
following
sentence
to
the
ISO
definition
of
“pollution
incident”:
“The
term
‘pollution
incident’
includes
an
‘accidental
release’
or
‘occurrence’”.
This allows
an
insurer to
bring the
ISO policy form into line with the USEPA regulations by adding
a
101—3 82
-13-
simple
rider.
If the insurer fails
to
do
so,
the policy would
be amended
by
paragraph
(2)
of the endorsement form of
40 CFR
280.97(b)(1),
incorporated
by
reference
in Section 731.197(b).
Since this amendment would
be
simple,
it
is
unlikely that any conflict would
result
between the language
of
an ISO policy
form and the regulations.
40 CFR
280.92
includes
a definition
of
“Director of the implementing
agency.”
The financial
responsibility rules
and instruments
give certain
rights
to the Director.
This
is
apt to cause
some problems in the Illinois
rules,
since,
as
discussed above,
two different agencies are responsible for
aspects
of the program.
The Board
has
provided
cross
references
to the
definition of “implementing agency”
in Section
731.112,
and to Section
731.114,
adopted
in R88—27.
The effect
of this
is
to defer the question
of
the division of authority
to R88—27.
The definition
of
“owner or operator” specifies that, when they are
separate
“parties”,
the term refers
to
the one which
is obtaining the
financial
responsibility.
Section 731.190(e)
allows
either to
obtain
financial
assurance, but provides that both are
liable
in the event
of
failure.
The Board
has
replaced “party” with the defined term “person”.
In
the Board’s procedural
rules,
a
“party”
is
a person
involved in
a
contested
case.
“Pollution incident”
is
an ISO definition
inserted, and modified,
as
discussed above.
“Property damage”
has been modified to
insert the ISO
definition,
also as discussed
above.
In
40 CFR 280.92,
“provider of financial
assurance” includes the
issuer
of
a
state-required mechanism or the state.
These
relate
to
40 CFR 280.100
and 280.101, which
allow for state-required mechanisms
or for the State
itself
to provide financial
assurance.
Since
the Board
has not
allowed
use of
these
mechanisms,
the references
have been deleted
fromn the definitions.
40 CFR 280.92 defines
“substantial
business relation” as
the extent
of
a
business relationship
necessary under state
law to make
a guarantee contract
enforceable.
This appears
to
be
a directive from USEPA
to write
a
definition
which limits guarantees to
those which
are valid
in
Illinois.
(53 Fed.
Reg.
43345, October
26,
1988)
There
are two types
of guarantees.
One
is
a performance
bond written
by
a regulated financial
institution.
The other
is
a guarantee
by one business
entity,
which
is
not
a financial
institution,
but which meets the financial
test,
that
it will
pay any
clean
up costs
if another
entity fails to do
so.
The
latter type of guarantee
is
subject
to the objection that
the guarantee
may be
invalid unless the guarantor
is
regulated
as
a
financial
irtstitution.
It may also be subject
to consumer protection legislation,
since the
relationship
is
rather like
a
teenager getting his
aged aunt
to cosign
a
loan
for
a
car.
The question
is, what
is the
extent
of the relationship between
the guarantor and operator such that the guarantee
is valid?
The RCRA hazardous waste
and UIC rules
limit
these guarantees to those
from a parent corporation
to
a subsidiary.
A subsidiary
is
defined
as
a
corporation which
is more than 50
owned
by the
parent guarantor.
(See 40 CFR
101-383
-14-
264.141 and 264.143(f).)
This
is probably a sufficient relationship
to
result
in
a
valid
guarantee
anywhere.
The Board
addressed this question
in R84—22C.
Since the 50
ownership
requirement
appeared
to
be
rather
restrictive,
the
Board
proposed
to
allow
guarantees
from
any
entity
with
any
ownership
interest
in
the
operator.
(See
35
111.
Adm.
Code
807.666(h).)
This
was
accepted
by
the
State
regulatory
agencies.
Since
this
is
sufficient
to
ensure
enforceability
of
the
guarantee,
Board
proposed
to
follow
the
R84-22C
formulation
in
this
definition.
The
Board
requested
comment
in
this
matter,
including
a
specific
request
to
the
Department
of
Insurance,
but
received
no
response.
The UST rules
mainly affect petroleum marketers.
This industry
is
quite
a
bit
different
than
the
waste
industry
in
that
it
is
involved
in
selling
a
product
to the public.
Specifically, there
may be
a
“substantial
business
relationship” arising from the sale
of petroleum by manufacturers to
wholesalers,
and by wholesalers
to
retailers.
It
is
possible that
a supplier
of petroleum may want to
guarantee the clean
up
costs of
its customers,
even
though they are independent entities.
However, the normal business practice
in the industry
is for the buyer to indemnify the
seller.
(53 Fed. Reg.
43345, October
26,
1988)
The Board
specifically requested comment
as
to
whether anyone was
interested
in this form of
financial
assurance, but
received
no
response.
As noted
above in
Section 731.191,
local
government
units do not have to
get financial
responsibility until
October 26,
1990.
The Board
has added
a
definition
of “unit
of
local
government”,
a term used
in
the Illinois
Constitution,
and to use this term above
in
relation to the delayed
requirement.
Section 731.193
This Section sets
the
amount
of
financial
assurance required.
Unlike the
hazardous waste and UIC rules,
the
amounts
are set by
rule,
rather than by
a
cost estimate
and plan.
The required amounts represent the total
for
corrective
action and third
party liability.
While Section
731.193(a)
sets
limits
on
a per—ocurrence basis,
Section 731.193(b)
sets annual aggregate
limits.
Petroleum marketing facilities and other large throughput
facilities
are required to
have
at
least
$1 million per occurrence.
Smaller facilities
which
do not market petroleum must
have
at
least $500,000 per occurrence.
Operators of
100 or fewer tanks must have an
annual aggregate of
$1 million.
Larger operators must have
an
annual aggregate of
$2 million.
USEPA expects
an annual probability
of 11.8
that
a tank will
leak during
the first
five years
of
the program.
The annual
aggregates are set
at
a
level
which
is
well below the
levels which the expected leak rate implies.
USEPA
has done this out
of concern
that annual
aggregate coverage in excess
of
$2
million nay be
unavailable.
USEPA has justified this
on
the
basis that the
per occurrence amount
has
been set
high enough
that 99
of occurrences will
be
covered.
(53 Fed.
Reg.
43337, October 26,
1988)
101—384
-15—
Section 731.194
This Section specifies the allowable mechanisms
and combinations
of
mechanisms
by which the operator provides financial
assurance.
40 CFR
280.94(b) allows guarantees
or surety bonds only
if
the Attorney General
certifies
that
the
mechanism
is
a
legally
valid
and
enforceable
obligation.
This
is
related to the definition
of
“substantial
business relationship”
discussed
above.
The Attorney General
certification is also discussed
in
general
above.
In this situation the
rules will
be
in the definitions,
discussed above,
and
in
the
provisions
governing the guarantee and
bonds,
which
are discussed below.
The Board will
seek to
comply with
40 CFR
280.94(b),
but will
not adopt
its text.
There will
be
a hole left
in the
subsection lettering
at this point.
The
Board
will
not reletter
the subsections,
so
as
to preserve the close
correspondence with
the USEPA Section
numbers.
The Code Unit
will
not allow
the
insertion
of
“reserved”
to
mark
the
hole,
so
this
is
apt
to
cause
some
confusion.
However,
this
is
less
than
would
result
from
relettering.
40 CFR 280.94(c) refers
to the
financial test under
“this
rule”.
In the
Administrative
Code
this
would
probably
be
construed
to
mean
“this
Section”.
However, the financial
test
is
not
in this Section.
The reference
is probably
intended
to
be
to the entire Subpart,
i.e.
the entire
“rule” which appeared
in
the
October
26
Federal
Register.
The
financial
test applies only
to business entities.
USEPA
has
indicated that
it
intends
to propose
a
financial test for units
of
local
government.
(53
Fed.
Reg.
43343,
October
26,
1988)
Section
731.195
This Section governs the
financial
test which the owner
or operator,
or
guarantor,
must meet to
avoid providing hard financial
assurance.
40 CFR
280.95
refers
to
the
“owner
or
operator,
and/or
guarantor.”
For
the
reasons
discussed above, the Board
has
replaced “and/or” with the
shorter
and more
correct
“or”.
The operator is
allowed
to meet the
financial test of
either subsection
(b)
or
(c).
40 CFR 280.95(b)
and
(c) contain
subsections,
but there
is
no text
following the main subsection
label
(‘(b)”
or
‘(c)”).
This
is prohibited
by
the Code
Unit.
The Board
has inserted headings
to
comply with Code Unit
requ i rements.
To meet the financial test
of subsection
(b) the operator, among other
things, must have
a tangible
net worth of
at
least ten
times the total
required
financial
assurance
under
the
UST
program,
the
RCRA
hazardous
waste
program
and
the U1C
program.
This
raises
a
question
as
to
the
meaning
of
“state”, similar
to that discussed
in connection with Section 731.190 above.
There
are probably many multistate UST operators.
As
the Board
understands the UST
program,
the multistate
operators will
have to provide
101—385
-16-
separate
financial
assurance
to
each
authorized
state
in
which
they
have
tanks.
In
other
words,
after
the
program
has
been
delegated
to
the
states,
there
appears
to
be
no
mechanism
by
which
a
multistate
operator
could
provide
national
financial
assurance
to
USEPA
covering
all
tanks
nationwide.
However,
with
respect
to
the
financial
test,
the
financial
multiple
appears
to
be
based
on
all
required
financial
assurance
nationwide.
This
makes
sense
in
that
it
is
compared
to
nationwide
tangible
net
worth
of
the
guarantor.
(53
Fed.
Reg.
43341,
October
26,
1988)
40 CFR 280.95 cites
to the USEPA financial
responsibility
rules,
and to
the
rules which govern
authorization of
states.
The Board has referenced the
USEPA rules,
the corresponding Illinois
rules,
and the USEPA approval
rules.
This will
require aggregation
of:
amounts required to
be supplied to USEPA
in
states where USEPA administers the program;
amounts
to
be supplied to
Illinois;
and, amounts
to
be supplied to
other states with approved programs.
With respect
to
financial assurance
for UIC wells, petroleum production
injection wells are regulated in Illinois
by the Department
of Mines and
Minerals.
The Board
has cited
to these
rules
as well
as
its own UIC
rules,
which
apply
to
hazardous
waste injection
and other types
of wells.
Note that
petroleum marketers
are more likely
to have petroleum injection wells than
hazardous waste wells.
40 CFR 280.95
is quite
specific
in citing to the USEPA financial
assurance requirements.
These provisions would
become very lengthy
if the
Board provided exact
citations to
all
of the USEPA, Board and Mines and
Minerals Sections which
require
financial
assurance.
Instead, the Board
has
shortened these
to
reference only the Parts.
There
is
no change
in meaning,
since USEPA
cites
all
of the Sections which
require financial
assurance.
The financial
assurance provided to other states
is
identified
by
referencing the USEPA rules
governing approval
of the UIC, hazardous waste and
UST programs.
These
are 40 CFR
145,
271 and
281.
These
references
to federal
regulations
are not incorporations by
reference.
The Board
is not,
for example,
requiring persons
to comply ~iith
these federal
regulations.
These references serve
to identify the
various
types
of
financial
assurance by citing
to the
federal
regulations which
require that
it
be provided,
or which
govern approval
of
state programs which
require that
it
be provided.
These references therefore do
not
need to
be
placed
in the incorporations by
reference Section
(Section
731.113
in R88-27),
and there
is
no
limitation on future amendments.
Section 731.195(c)
allo~.isoperators which meet
the RCRA financial
assurance test
for third-party
liability insurance
to qualify for the UST
test.
The UST amounts
are
substituted
into the RCRA formula.
The
Board
has referenced
the Board equivalent
of
40 CFR 264.147, which ~s
35
Ill. Adm. Code
724.247.
The way this provision
is ~iorded,
the operator
demonstrates that
it meets this test,
as opposed
to demonstrating that
it
has
met this test
as determined
by
another agency.
A reference
to the USEPA rule
at this point
would
be
an incorporation
by
reference,
in that the
rule would
be defering to
the federal
rule for the contents
of the
test,
as opposed
to
101—386
—17—
defering to
a
federal
action.
The problems associated with incorporations by
reference are avoided
by referencing the equivalent State
rule.
40 CFR 280.95(c)(5)(i) has an apparent typographical
error which
could
lead to
a misreading
of the
rule.
“Letter form” should
read “letter from”.
Compare the similar language
in
40 CFR
264.147.
As
is discussed
in general
above,
Section
731.195(d)
incorporates the
federal
forms
by reference,
and
requires the operator to use the
federal
forms,
with appropriate changes.
Section
731.196
This
Section
governs
“guarantees”.
This
is
a
mechanism
in
which
another,
non—financial business
entity
promises
that
it will
pay any corrective action
or damage claims
if the operator fails
to
do
so.
(53 Fed. Reg. 43343, 43345
and 43355, October
26,
1988)
40 CFR 280.96(a)(1)
and
(2) allow guarantees from parent corporations to
subsidiaries, and from firms
“engaged
in
a
substantial
business relationship”
with
the operator.
This
is
related
to the definition of
“substantial
business
relationship”,
and to
40 CFR
280.94(b),
which are discussed
above.
In R84—22
the Board
determined that,
under Illinois
law,
any ownership interest
in the
operator
is
sufficient
to support
an
enforceable guarantee.
The Board has
edited this provision to
be consistent with the discussion
above.
The Board
also solicited comment
as
to
other business relationships which might
support
the guarantee,
and
received
no response.
40 CFR 280.96(b) requires
the guarantor to submit
financial
statements
within
“120 days
of” the
close
of the fiscal
year.
From the context
it
is
clear
that this means
“120 days after”.
As
is discussed
in general
above,
Section 731.196(c)
incorporates the
federal form by
reference, and requires the Fire Marshal
to prepare preprinted
forms, based
on the federal
rules.
The operator or
guarantor is required
to
use the form,
if available.
The Board
has added Section 731.196(e) to limit
guarantees
to those
governed by Illinois
law,
as discussed
in
general
above.
Before making
a
guarantee satisfying the financial
assurance requirement,
the corporation must
register with
the Secretary
of State.
The guarantor must include
a letter
identifying
its
registered
agent
in
Illinois, state that the guarantee was
executed
in Illinois
and agree
that Illinois
law
governs the guarantee.
The
Secretary
of State’s office
has indicated that
it has
no objection
to
a
regulation requiring corporations
to obtain
a certificate
of authority.
(PC
2)
Section
731.197
This
Section
allows
the
operator
to
obtain financial
assurance by
obtaining liability insurance from an
insurer or
risk retention group.
101—387
-18-
40
CFR
280.97(c)
limits
acceptable
insurance
to
that
which
is
issued
by
an
insurer or
group
which
is
“licensed
to
transact
the
business
of
insurance
or eligible
to provide insurance as
an excess or
surplus
lines
insurer
in one
or more states.”
As far
as the federal
rule is concerned, licensing
in one
state
is
sufficient to qualify
an insurer
in
all
states.
For the
reasons
discussed above,
the Board
has limited insurers to those which are licensed by
the
illinois
Department
of
insurance.
The
Board
solicited
comment
on
this,
including
a
specific
request
to
the
Department
of
Insurance,
but
received
no
response.
Section
731.198
This
Section
allows
the
operator
to
meet
the
financial
assurance
requirement by providing
a
surety bond.
In the event there
is
a
release which
the
operator
fails
to
correct,
the
surety
funds
a
standby
trust,
which
is
then
available to
pay for
the clean
up.
40 CFR 280.98
limits sureties to
those which
are acceptable
under the
latest Circular 570 of the U.S. Treasury.
For the reasons discussed
above,
the
Board
has limited sureties to
those which are licensed by the Illinois
Department
of Insurance.
In R84-22 the Department
of
Insurance indicated that
most
sureties on Circular 570 are licensed
in Illinois,
so that this will
not
restrict the availability of sureties.
Unlike the hazardous waste
and UIC
rules, UST rules
do not include
a
“performance bond”
as
such.
The bond allowed
by this Section
is
a forfeiture
bond
in which the surety
does not
have the option
of performing
the corrective
action
instead
of paying
the penal
sum.
Section 731.199
This Section allows the operator to meet
the financial assurance
requirement
by delivering
a
letter
of
credit
to the Fire Marshal.
In the
event
of
a default,
the Fire Marshal writes
a
sight
draft, which
it presents
to the
financial
institution through banking channels.
The institution
pays
the
amount
of the draft
into
a standby trust
fund.
The institution
then
has
to try to collect the amount
of the draft
from the operator as
though
it were
a
loan.
For the
reasons discussed
in general
above,
the Board
has limited letters
of
credit
to
those from financial
institutions which
are regulated and
examined
by
the Illinois Commissioner of Banks and Trust
Companies.
This
provision also limits letters
of
credit
to those from institutions with
authority to
issue them.
In addition to regulatory approval
in
Illinois,
institutions must have authority to
issue letters
of
credit under the laws of
the
state
in which they were organized,
and this authority must
be reflected
in their charter.
The Board
has adopted
no equivalents
for 40 CFR 280.100 and 280.101,
which allow for financial assurance by way of alternative State-required
mechanisms,
or
by
a State
fund.
The merits
of
a State fund,
and the
possibility
of
legislation,
are discussed
in general
above.
101—338
—19—
Section 731.202
This Section allows the operator to satisfy the financial
assurance
requirement by establishing
a
trust
fund.
USEPA indicates
in the preamble
that states are free to
limit
trusts
to those
established
in their
jurisdictions.
(53 Fed. Reg. 43356, October 26,
1988)
In R84-22 the Board
determined that trustees must either
be
regulated by the Illinois Commissioner
of Banks and Trust Companies,
or comply with the Corporate Fiduciaries Act
(Ill.
Rev. Stat.
1987,
ch. 17,
pars.
1551-1
et seq.).
For the
reasons
discussed above,
the Board
has so
limited UST trusts.
In addition, operators
and trustees will
be
required to
agree that the trust
is governed
by
Illinois
law.
The Code Unit has pointed out that
the proposed
reference was recodified
by P.A. 85-858.
Section 731.203
This Section requires that an
operator using certain mechanisms establish
a standby trust
to
receive the proceeds
of certain
financial
assurance
mechanisms.
In the event
of
a default, the financial
institutions
pay the
proceeds into the standby trust.
The Fire Marshal
then directs the trustee to
pay
claims.
(PC
1)
Section
731.204
This Section allows the operator to
substitute
financial assurance
mechanisms,
so
long
as the total
amount satisfies the
requirements of Section
731.193 as
to amounts.
Section
731.205
This Section allows the provider of financial assurance to
cancel
by
giving
60
to
120 days notice
to the operator, depending on the type.
The
operator has 60 days to
obtain alternate financial assurance.
If the operator
fails,
he must notify the Fire Marshal.
(53 Fed. Reg. 43356, October
26,
1988)
Section
731.206
40 CFR 280.106(c) allows the implementing
agency to require the operator
to
submit evidence of
financial
assurance at other
times.
The
rule does
not
specify whether this
is
to
be done on
a case—by—case basis,
or
by
rule.
(53
Fed. Reg. 43357, October
26,
1988)
As
discussed
in general
above, the Board
has determined that
the
rules need to
require actual
prior filing
of
financial
assurance documents with the
State.
(PC
1)
The Board
has therefore replaced
the text
of 40 CFR 280.106(a) with
a requirement that the operator deposit any
required documents with
the Fire Marshal within
14 days after the operator
receives the document.
Section 731.206(b) requires
the operator to certify compliance with the
financial
assurance
requirements
as
a part of the notification form for
a new
tank.
101—389
-20-
Section 731.207
This Section requires the operator to maintain the financial
assurance
documents at the site or
at
its place of business.
This
is
subject
to the
discussion
of Section 731.206(c) above.
The USEPA rule appears to allow the
documents to be kept out of State, which would create difficulties
in
inspecting.
However, the Board has
fixed this by above requiring actual
filing of duplicate originals of the documents with the Fire Marshal.
(PC
1)
40 CFR 280.207(b)(5) includes
a reference
to documents concerning
a
State—required
mechanism.
Since
this
is
not being adopted, the reference has
been dropped.
The Board will
leave a hole
in the subsection
numbering,
so
as
to avoid disrupting the
simple correspondence between Board and .USEPA
number i n g.
Section 731.208
40 CFR 280.108(a) provides that the implementing agency
is
to
require
financial
institutions
to fund
the standby trust
if the operator fails to
establish alternate financial
assurance within
60 days after cancellation
“and”
if the agency determines
or
suspects that
a
release has occurred from
the tank,
or
if there
is
a final
determination that payment out
of the fund
is
needed,
as discussed below.
There are problems with this language.
40 CFR 28O.108(a)(1)
has subparagraphs,
but no
language at the
(a)(1)
level.
This
is prohibited by the Code Unit.
The Board
has
inserted the
conjunction
“Both:”
at the
(a)(1)
level
to
satisfy this Code Unit
requirement.
This assumes
that the conjunction
“and”
at the end of subsection
(a)(1)(i)
is correct.
“Either:
...
or” may
be what USEPA intended.
(53 Fed.
Reg. 43359, October 26,
1988)
However, the Board specifically
requested
comment
as to whether “or” was
intended,
and received no
response.
Since
the agency can require the standby trust
to
be funded
on suspicion
of
a
leak,
there
is
a possibility that the suspicion will
be unfounded.
Section
(4) of
the trust document, specified by
40 CFR 280.103(b),
allows for
refunds
in such
a case.
As discussed above, the
rules
differentiate
the funding of the standby
trust from the application
of proceeds from the standby
trust
to pay claims.
Section 731.208(b) concerns when the implementing agency draws
on the standby
trust.
These could
occur at the
same
time.
The implementing agency draws
on the standby trust
under one of three
circumstances.
Section 731.208(b)(1) allows the agency
to draw on
the trust
when the agency makes
a
“final
determination” that
a release
has
occurred,
that corrective action
is
needed and that the operator,
after receiving notice
and the opportunity to
comply,
has
not conducted corrective action.
Section
731.208(b)(2) allows
the agency to draw from the standby trust:
if
it
receives certification from the operator that
a claim should
be paid to
a
third
party;
or,
if a third
party
has
a
final
judgment against
the operator
and
the agency determines
that it
has
not been satisfied.
101—390
-21-
Section
731.209
This Section
releases the operator from the financial
assurance
requirements after a tank has been closed, and
any corrective action
completed.
Section
731.210
This Section
requires the operator to notify the Fire Marshal within
10
days after comencement of bankruptcy proceedings
naming the operator
as the
debtor.
A guarantor has to notify
the operator within
10 days
of the
guarantor’s bankruptcy.
The operator
is
required to provide alternate
financial assurance within
30 days after
the bankruptcy,
or
loss,
of authority,
of
of the provider of financial
assurance.
40 CFR
280.110(c) and
(d) include provisions
concerning State
mechanisms.
Since the Board
has
not
adopted
any of these, the provisions
have
been
omitted.
Section
731.211
This Section requires the operator to replenish
the financial
assurance
after the standby trust has been funded.
The operator must do this by the
anniversary date of the mechanism from which funds were drawn.
This Opinion
supports the Board’s Order
of this same date.
The Board
will withhold filing of the adopted
rules until
August
28,
1989,
to allow tine
for the agencies involved
in the authorization process
to file motions for
reconsideration.
I, Dorothy
M.
Gunn, Clerk
of the Illinois Pollution Control Bp~rd hereby
certify that the above Opinion was adopted
on the~7~day of
____________
1 989,
by
a
vate
of
~
o
.
)?~
//~
Dorothy
Ft. G~yln, Clerk
Illinois
Pol’l~utionControl Board
101—39 1
