By Linda Gelfand

Spills or leaks from petroleum product underground storage tanks (USTs) can contaminate soil and groundwater and migrate to surface waters or neighboring properties. They can also lead to third-party bodily injury and property damage and natural resource damage claims. Owners and operators must not only comply with regulations they also must manage their tanks and their finances to protect themselves against costly environmental cleanups, claims, maintenance and tank removal costs.

The risk of a release varies based on the age of the tanks, construction of the tanks and associated systems, effectiveness of tank monitoring and maintenance, type of leak detection and other factors.

One source of releases is the delivery of product into a storage tank, where the product delivery hose is connected to a fill pipe and pumped into the tank. Improper hose connections or leaving product in the hose following its disconnection can lead to spills. Spills can also occur when a tank is overfilled with more product than it can hold.

In addition to spills from product delivery, leaks can occur from one or more areas of a storage tank system. Common areas where leaks can occur include underneath the dispenser island, from the spill bucket, from submersible pumps, along the piping that conveys the fuel from the tank to the dispenser, from UST system sumps and from the tank itself. For metal UST system components including piping or tanks, corrosion can occur over time, leading to holes and loss of product. Corrosion and installation issues have resulted in the highest cost releases in the past, according to the Association of State and Territorial Solid Waste Management Officials.

Tank age is another significant risk factor. The longer storage tank systems are in use, the higher the risk for the tank, piping and other components to deteriorate and eventually have a leak.


Financial Responsibility

UST regulations require petroleum UST owners to demonstrate financial responsibility. According to the EPA, the most-used financial assurance mechanisms are state funds and private insurance. Pollution liability insurance is the only financial assurance mechanism to provide legal defense costs.

A storage tank policy can be used to cover losses specifically associated with UST systems. The losses include discovery of a leak from a tank or its associated piping, a leak migrating to an adjacent property, damage to natural resources, spills during loading and unloading, defense against third-party claims and costs associated with responding to an emergency where contamination is of imminent danger to human health or the environment.

A storage tank policy cannot be used to cover the costs associated with tank removal and/or replacement or disposal of waste materials. It also does not cover costs associated with tanks that are not listed on the policy (e.g., discovery of a previous unknown tank). Furthermore, coverage is not provided for costs associated with any other releases from other sources, such as hydraulic lifts, oil/water separators, etc. that may be present at locations where a UST may be operating. To cover the risks posed by these other sources, UST facilities may consider a premises pollution liability insurance policy. USTs must be individually scheduled on the policy. Most states require a certificate of financial responsibility for USTs, and a storage tank liability policy, or certain premises pollution liability policies, can satisfy that requirement.


Insurance Policy Specifications

To satisfy financial responsibility requirements, insurance policies must have the following provisions:

  • Separate defense limits with first dollar coverage
  • Six-month extended reporting period for claims-made coverage
  • Required wording on the endorsement or certificate of insurance, as indicated in the Code of Federal Regulations, 40 CFR 280.97(b)(1) and (2)
  • On-site and off-site cleanup and third-party claims for property damage and bodily injury
  • Cover both sudden and non-sudden releases
  • Cover releases from loading and unloading activities

Storage tank insurance and premises pollution liability insurance policies are written on a claims-made basis, indicating that the loss must occur after the retroactive date and before the end of the policy period, and the claim must be made while the policy is in effect.

The retroactive date is important for an insurance policyholder because no coverage will be provided for remediation expenses or third-party claims associated with contamination that existed prior to the policy’s effective or retroactive date. Ideally, the retroactive date would coincide with a UST’s date of original installation or equipment update; however, if any gap occurs in coverage or the site changes owners, the retroactive date will be reset to the inception date of the new policy.

Other important insurance conditions that UST facility owners should be aware of that can impact their coverage include the following:

  • The definition for the terms “pollution condition” and “release” can be important to coverage. Many policies only cover remediation expenses for a confirmed release from a UST, where confirmed release means contamination that has been investigated and verified by, or on behalf of, an insured. The UST facility owner should be aware that tank tightness testing, site investigations or sampling may not be covered under the policy. Broader coverage would include language that covers suspected releases, including expenses to investigate and confirm a release has occurred.
  • Many policies have notification conditions that require the insured to notify the insurance company of any plans to perform a voluntary tank removal or replacement within a certain time frame prior to the removal or replacement. The insured typically must notify the carrier when they become aware of any contamination or incur an emergency expense that could give rise to a claim. Verbal notice may initially be given, but written notice must follow. If the policy claim notification provisions are not followed, a claim may be denied.
  • Some policies have exclusions for intentional noncompliance with environmental laws that result in a release. Failure to comply with environmental laws could lead to a denial of coverage. The burden is on the insured to demonstrate that the noncompliance was not intentional, according to EPA.


Aging Tanks Challenge

Underground petroleum tanks are typically expected to have a life expectancy of 30 years, according to Yale Environmental Health & Safety. Aging tanks are a risk that owners and/or operators must address. The longer they wait, the chances of the tank leaking and the costs to maintain them increase.

According to UCPM, a wholesale environmental insurance brokerage, most markets create financial barriers for tank owners and operators to avoid insuring older USTs. They can do this by only offering tank pollution liability coverage with higher minimum premiums and larger deductibles. Most carriers are leery of providing lower deductibles to older USTs because they have a higher likelihood of paying large cleanup costs after a release. As tanks age, the cost to insure them increases, with a sharp increase in the premium curve around the time that a tank reaches about 30 years in age.

Insurance is a desirable financial mechanism even for those older tanks; however, as tanks age, it is advisable to explore options including removal, close in place, replacement and/or a switch to above-ground tanks. The clock is ticking on insurance for the older tanks, as all tanks will eventually need to be removed or closed in place. Preparing for this should be part of a facility owner’s financial planning and risk management strategy.


UST Removal, Replacement and Remediation

There are a few reasons to remove a UST from service, including the age of the tank(s), business closure and confirmation of a release. You may also find that the UST is no longer needed for its original intended use.

A typical UST removal including excavation, transportation, disposal and returning the ground surface to the original form ranges from $15,000 to $20,000 for a single tank. These costs assume the UST is in good condition, with no leaks or contamination found during removal. According to the EPA, cleanup costs associated with UST removal range from $10,000 for a leak with a small amount of contaminated soil, to over $1 million for leaks that have reached groundwater, depending on the extent of the contamination. The average cost of a cleanup is about $130,000 according to EPA.


Preparing for the Inevitable

Currently more than half of the estimated 415,000 USTs in service are more than 25 years old. From the day the USTs are placed into the ground, owners and operators must assume that long-term operation of any UST system will eventually result in removal, replacement and potential cleanup of contamination resulting from a release.

As the UST system approaches 30 years in age, it may be time to consider replacing the system. Following removal, a new system must be installed unless the business is closing, being sold or the USTs are being replaced with ASTs. Assuming three 10,000-gallon USTs are being replaced with a similar system, replacement costs including new tanks, piping, dispensers and necessary testing can approach $300,000 or more and take several weeks.

For many businesses, the cost to install new tanks is something they may not be prepared for, which is why it is important to start planning for tank replacement from the day your tanks are installed. As an example, for a UST system replaced in 20 years with an average inflation rate of 2.5% and a present value of $300,000, the annual value required to be set aside for the future replacement of the UST system would be about $22,100. This cost does not consider the business income lost during UST replacement, nor upgrades, maintenance and repairs that are required over the life of a UST. Facility owners need to plan for these costs, so they do not come as a surprise.

Based on the increased risk for a spill or release for an older tank and the limited options for financial assurance as a tank ages, UST owners may want to consider replacing their tanks between the ages of 20 and 30 years old. By doing so, they reduce the likelihood of a significant release at their facility. UST facility owners must understand and financially plan for the eventual closure or replacement of their USTs.

UST Liabilities Linda Gelfand is a vice president at Environmental Risk Professionals and has over 25 years of experience in pollution liability insurance and EHS management. Environmental Risk Professionals is a team of highly experienced risk professionals determined to help contractors and other business owners minimize pollution claims. For more information, visit