Underground Storage Tanks—A Changing Marketplace

These endorsements exclude claims discovered during tank replacements leaving owners/operators on the hook when there is the highest chance of discovering a leaking tank system.
Which tanks are impacted and why are these changes occurring:

The USTs most impacted are those 25 years and older, especially single-walled steel with cathodic protection (or similar construction). The industry views the average useful life span of tanks between 26 and 30 years. Depending on soil conditions, this useful life may be shorter or longer, but it is known that as the tank ages, the likelihood the system is leaking grows exponentially.
Many components of the UST system have a shorter lifespan than the physical tank itself. Most notably, the spill bucket is often the weak link in these systems and needs to be replaced more regularly.
The changing nature of the fuels held in USTs affects their overall useful life and the corresponding system components greater than 20 years old were designed to hold a different composition of fuel than what is being delivered today. Some tanks are degrading faster with these new blends (i.e., increasing ethanol percentage).
Some states have put increased pressure on those insurance companies who issue Financial Assurance, requiring policies to broaden terms and conditions and pay for claims that would ordinarily be excluded.
Additionally, as the sensitivity of testing equipment is improved and cleanups are held to higher standards, both frequency and severity of UST claims are on the rise.

Looking to the Future

From traditional risk transfer of an insurance policy to the posting of letters of credits or surety bonds, it is crucial to look at options early and be prepared for the changes to come. While a complete UST replacement is expensive and cumbersome, at some point it becomes unavoidable. These costs, and when they should be incurred, will need to be weighed against growing insurance premiums and retentions.
A more comprehensive review and overall guide to tank insurance is subject to a further conversation. Interested parties should refer to “Dollars and Sense-Financial Responsibility Requirements for Underground Storage Tanks” issued by the EPA or “Guide to Tank Insurance” written by the Association of State and Territorial Solid Waste Management Officials for more detailed information.

Greg Cushard is vice president /producer at Lockton, leading a strategy and consulting practice. His practice expertise at Lockton is in high risk energy companies, focusing on corporate insurance brokerage, enterprise risk management, captive insurance consulting, and employee benefits. Cushard’s petroleum and crude oil industry expertise resides with refiners, terminal and storage facility operators, gas and convenience store operators, wholesalers, private fleet haulers, and rail exposures. Contact: [email protected] or www.lockton.com

Michael Manis has spent the last two years at Lockton expanding their West Coast energy and environmental practice. Coming from an engineering background, he brings technical experience that aids in the understanding of risk profiles and market discussions. As an account executive, Manis handles a book of business encompassing a wide range of energy and environmental clients, with a concentration of clients in the retail gas station/c-store, terminal, oil and gas and renewable energy sectors. Additionally, he is the lead Environmental Consultant for Lockton’s West Coast offices where he aids in the risk management and policy placement of highly exposed environmental risks.