Hazardous Waste: An Update on the Cost and Availability of Pollution
Insurance (Chapter Report, 04/05/94, GAO/PEMD-94-16).

An estimated 275 million metric tons of hazardous waste are treated,
stored, and disposed of annually in the United States, and the volume is
growing. Congress has been concerned about the difficulties encountered
by some hazardous waste facilities in obtaining pollution insurance.
Unless facilities can demonstrate that they have the resources to cover
bodily injury and property damages resulting from their operations, they
cannot legally stay in business, which raises concerns about the
adequate handling of hazardous waste. This report (1) lists insurance
companies providing pollution liability insurance and closure or
postclosure insurance and describes the extent of coverage and the
coverage costs; (2) updates the cost and availability of pollution
insurance to land disposal facilities; and (3) determines the
implications if state cleanup funds were made available to treatment,
storage, and disposal facilities for pollution cleanup and for
compensating victims who have suffered pollution, bodily injury, or
property damage.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  PEMD-94-16
     TITLE:  Hazardous Waste: An Update on the Cost and Availability of 
             Pollution Insurance
      DATE:  04/05/94
   SUBJECT:  Liability insurance
             Hazardous substances
             Industrial accidents
             Industrial wastes
             Industrial pollution
             Insurance companies
             Insurance cost control
             Pollution control
             Waste disposal
IDENTIFIER:  EPA Hazardous Waste Data Management System
             California
             Pennsylvania
             Texas
             Colorado
             Minnesota
             Mississippi
             Alaska
             Nevada
             Vermont
             EPA Resource Conservation and Recovery Information System
             
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Cover
================================================================ COVER


Report to the Honorable
Nancy L.  Johnson, House of Representatives

April 1994

HAZARDOUS WASTE - AN UPDATE ON THE
COST AND AVAILABILITY OF POLLUTION
INSURANCE

GAO/PEMD-94-16

Pollution Insurance Cost and Availability


Abbreviations
=============================================================== ABBREV

  AIG - American International Group
  CGL - Comprehensive general liability
  EPA - Environmental Protection Agency
  EQD - Equivalent disposal
  EQN - Equivalent nondisposal
  GAO - General Accounting Office
  HWDMS - Hazardous Waste Data Management System
  MSD - More stringent disposal
  MSN - More stringent nondisposal
  RCRA - Resource Conservation and Recovery Act
  RCRIS - Resource Conservation and Recovery Information System
  PCB - Polychlorinated biphenyls
  TSD - Treatment, storage, and disposal
  UST - Underground storage tank

Letter
=============================================================== LETTER


B-256573

April 5, 1994

The Honorable Nancy L.  Johnson
House of Representatives

Dear Ms.  Johnson: 

We are submitting this report on the availability of pollution
insurance for the owners and operators of hazardous waste facilities
in response to your request that we update the information contained
in our earlier report on this subject (GAO/PEMD-89-6).  In this
study, we report on the cost and availability of insurance for the
operation of facilities that treat, store, or dispose of hazardous
waste.  In addition, we discuss the availability of closure and
postclosure insurance for these facilities and compare the costs of
insurance for land disposal facilities with those we reported in our
1988 report.  We also discuss the views of insurance providers and
Environmental Protection Agency officials regarding the use of trust
funds as an alternative mechanism to provide the financial assurance
required under the Resource Conservation and Recovery Act. 

As we agreed with your office, unless you publicly announce the
contents of this report earlier, we plan no further distribution of
it until 30 days from the date of the report.  We will then send
copies to interested congressional committees, the Administrator of
the Environmental Protection Agency, and others who are interested
and will make copies available to other persons upon request.  If you
have any questions or would like additional information, please call
me at (202) 512-2900 or Kwai-Cheung Chan, Director of Program
Evaluation in Physical Systems Areas, at (202) 512-3092.  Other major
contributors to this report are listed in appendix III. 

Sincerely yours,

Eleanor Chelimsky
Assistant Comptroller General


EXECUTIVE SUMMARY
============================================================ Chapter 0


   PURPOSE
---------------------------------------------------------- Chapter 0:1

According to the Environmental Protection Agency (EPA), an estimated
275 million metric tons of hazardous waste are treated, stored, and
disposed of annually in the United States, and the volume is growing. 
The Congress has become concerned about difficulties encountered by
some hazardous waste treatment, storage, and disposal facilities in
obtaining pollution insurance, one of the financial mechanisms
allowed under the Resource Conservation and Recovery Act to meet
financial responsibility requirements.  Facilities unable to meet
these requirements cannot legally continue operation, which raises
concerns about the adequate handling of hazardous waste. 

To address this issue, Congresswoman Nancy L.  Johnson of the
Subcommittee on Health and Human Resources of the House Committee on
Ways and Means asked GAO to

  determine what insurance companies provide pollution liability
     insurance and closure or postclosure insurance, the extent of
     coverage, and the coverage costs for both;

  update its October 1988 report on the cost and availability of
     pollution insurance to land disposal facilities; and

  determine the implications if state cleanup funds were made
     available to treatment, storage, and disposal facilities for
     pollution cleanup and for compensation to victims who have
     suffered pollution, bodily injury, or property damage. 


   BACKGROUND
---------------------------------------------------------- Chapter 0:2

To address the problem of adequately treating, storing, and disposing
of hazardous wastes, the Congress enacted the Resource Conservation
and Recovery Act in 1976.  The act and its amendments were intended
to reduce the generation of hazardous waste and to minimize the
present and future threat to human health and the environment. 

To comply with EPA regulations promulgated under the act, treatment,
storage, and disposal facilities unless specifically exempted must
demonstrate that they have the resources necessary to compensate
third parties for bodily injury and property damage resulting while
the facilities are in operation and after they have closed and no
longer process or handle hazardous waste.  Under the act, facilities
can demonstrate their financial assurance for sudden (accidental) and
nonsudden (gradual) damage through liability insurance, financial
test (a demonstration of adequate assets), letter of credit,
corporate guarantee, surety bond, trust fund, or any combination of
these.  For closure and postclosure financial assurance, facilities
can use these mechanisms as well as closure and postclosure
insurance. 

According to EPA, over 4,000 U.S.  facilities treat, store, or
dispose of hazardous waste.  All these except the 445 federal and
state treatment, storage, and disposal facilities are subject to the
act's financial requirements. 

To address the issues raised by Congresswoman Johnson, GAO surveyed
674 treatment, storage, and disposal facilities randomly selected
from EPA's nationwide listing and received responses from 76 percent. 
However, 28 percent of these had never operated as treatment,
storage, and disposal facilities, and another 16 percent had ceased
operating.  GAO based its analysis on the 288 facilities that
treated, stored, and disposed of waste in 1990 or 1991.  (GAO's
further investigation of nonrespondents found no reason to believe in
any nonrespondent bias; see appendix II.) In addition, GAO
interviewed officials from EPA and state environmental divisions and
insurance commissions and representatives of insurance companies
providing pollution liability insurance. 


   RESULTS IN BRIEF
---------------------------------------------------------- Chapter 0:3

The majority of companies operating treatment, storage, and disposal
facilities in 1991 that attempted to obtain pollution insurance found
that it was difficult to obtain.  GAO identified 24 insurance
companies that provided pollution liability insurance in some form. 
The leading providers of insurance were the National Union Fire
Insurance Company and the Planet Insurance Company.  Zurich-American
Insurance Company, one of the companies in the sample, also informed
GAO that it planned to actively market pollution liability insurance
in the near future.  GAO found that closure and postclosure insurance
was available to treatment, storage, and disposal facilities only
under exceptional circumstances. 

About one third of treatment, storage, and disposal companies that
are subject to the financial responsibility requirements of the act
use liability insurance to cover accidental occurrences.  About one
quarter of these are land disposal facilities and are therefore also
subject to the gradual coverage requirements.  About one third of
these, in turn, use liability insurance to meet this requirement. 
The more recently allowable alternative mechanisms are used
substantially less than financial tests and insurance, and surety
bonds are extremely rare. 

The difficulty experienced by land disposal companies in obtaining
pollution insurance in 1991 has not significantly lessened since
1986.  In 1991, an estimated 36 percent of companies used pollution
liability insurance to cover accidental occurrences.  In 1986, 32
percent reported obtaining this coverage.  The cost of coverage
increased approximately 29 percent during this period. 

About 50 percent of all treatment, storage, and disposal facilities
reported that they would use state funds for cleanup if such funds
were available.  Conversely, insurance providers opposed the use of
state funds as a financial mechanism for cleanup.  One provider
indicated that the availability of state funds would constitute
direct competition from state governments.  According to insurance
providers, such competition would result in a reduction or
elimination of coverage. 


   GAO'S ANALYSIS
---------------------------------------------------------- Chapter 0:4


      COST AND AVAILABILITY OF
      POLLUTION INSURANCE IN 1991
-------------------------------------------------------- Chapter 0:4.1

GAO found that the two originally accepted financial mechanisms,
pollution insurance and financial test, remain the most frequently
used forms of coverage and that more recently allowable mechanisms
are used substantially less.  For accidental coverage, more companies
use insurance, while for gradual coverage, financial tests are more
common.  Most respondents to the survey reported great difficulty in
obtaining pollution insurance, and 44 percent reported being denied
insurance at least once over the past decade.  In most cases, the
reason was that their carriers were no longer underwriting pollution
liability. 

GAO estimates that pollution insurance policies were issued to 755
facilities operated by 545 companies and that more than three
quarters of them were written by one of the 24 insurance providers
identified.  The median cost of combined accidental and gradual
coverage was $22 per thousand dollars of coverage, and miscellaneous
additional costs were approximately $3 per thousand dollars of
coverage.  From its sample, GAO found only one instance of closure
and postclosure insurance and this was provided through a wholly
owned insurance company created by the treatment, storage, and
disposal company. 


      COMPARISON OF POLLUTION
      INSURANCE COST AND
      AVAILABILITY IN 1991 AND
      1986
-------------------------------------------------------- Chapter 0:4.2

Survey respondents reported as high a level of difficulty in
obtaining insurance in 1991 as they had in 1986.  Land disposal
companies continued to report that insurance companies were
decreasing their pollution insurance exposure.  GAO estimates that
the median cost of combined accidental and gradual insurance coverage
has increased from slightly under $20 to more than $25 per thousand
dollars of combined coverage since 1986.  The extension of acceptable
financial assurance mechanisms to include other forms has failed to
decrease the dependence of land disposal companies on insurance.  In
addition, more of these companies appear to be opting for fronting
policies, which offer little true coverage since they leave the
financial burden of third party cleanup with the treatment, storage,
and disposal facility. 


      IMPLICATIONS OF USING STATE
      FUNDS
-------------------------------------------------------- Chapter 0:4.3

Over 50 percent of all survey respondents indicated that they would
use state funds as a financial assurance mechanism if such funds were
available.  Smaller facilities reported considerably more interest
than larger ones.  Over 59 percent of facilities with a net worth of
$100 million or less reported that they would use state funds, while
only 26 percent of facilities with a net worth greater than $100
million would use these funds.  Some state officials said they
believe that state cleanup funds would work if an equitable funding
method were developed to assess common fees. 

Insurance company representatives, however, indicated that the use of
state funds might result in a reduction in policy coverage and higher
premiums.  One of the three insurance providers interviewed indicated
that states should not provide funds because doing so would be
providing taxpayer support to private treatment, storage, and
disposal facilities.  The provider also claimed that states are not
qualified to underwrite insurance.  Another provider commented that
the availability of state funds may drive some pollution liability
insurance providers out of business. 


   RECOMMENDATIONS
---------------------------------------------------------- Chapter 0:5

GAO is not making any recommendations in this report. 


   AGENCY COMMENTS
---------------------------------------------------------- Chapter 0:6

GAO discussed the report's contents with responsible agency officials
and incorporated their comments where appropriate.  GAO did not
obtain official agency comments on a draft of this report. 


INTRODUCTION
============================================================ Chapter 1


   BACKGROUND
---------------------------------------------------------- Chapter 1:1

Reports of potentially disastrous accidents involving the treatment,
storage, and disposal of hazardous waste have commonly occurred in
recent years as the government attempts to deal with ever increasing
volumes of waste.  Moreover, the growth in the production of waste
has not been mirrored by growth in waste management.  As a result,
concern has emerged about safe handling. 

Part of the multipronged approach of the Congress to reducing the
threat to human health and the environment posed by toxic substances
was the enactment of the Resources Conservation and Recovery Act of
1976, with the objective, among others, of regulating the treatment,
storage, transportation, and disposal of hazardous wastes.  The act
defined hazardous waste as

     "a solid waste, or combination of solid wastes, which because of
     its quantity, concentration, or physical, chemical, or
     infectious characteristics may .  .  .  cause, or significantly
     contribute to an increase in mortality or an increase in serious
     irreversible, or incapacitating reversible, illness; .  .  .  or
     pose a substantial hazard to human health or the environment
     when improperly treated, stored, transported, or disposed of, or
     otherwise managed."

In order to accomplish the objectives of the act, the Congress
authorized the administrator of the Environmental Protection Agency
(EPA) to issue regulations regarding the financial responsibility of
treatment, storage, and disposal (TSD) facilities as EPA might find
necessary or desirable.  To comply with the regulations, TSD
facilities have relied on the various allowable financial mechanisms
or combination of mechanisms, such as financial test, letters of
credit, and pollution liability insurance.  However, a 1988 GAO
survey disclosed that TSD facilities have had difficulty obtaining
insurance coverage for damage caused by hazardous waste.  TSD
facilities unable to demonstrate adequate financial responsibility
cannot legally continue to operate.  We concluded from these findings
that without such assurances from the TSD facilities, the nation's
ability to manage and safely dispose of hazardous waste under the
present regulatory system may be seriously jeopardized. 

A member of the Subcommittee on Health and Human Resources of the
House Committee on Ways and Means asked us to reexamine the
availability and cost of pollution liability insurance to TSD
facilities and to update the data from our 1988 report on pollution
coverage for land disposal facilities.  The present report responds
to that request and also discusses industry and government officials'
views on whether state funds are a viable option for providing
required financial assurances, as they are with underground tanks
used to store potentially harmful substances (discussed later in this
section). 


      LIABILITY REQUIREMENTS FOR
      OPERATING TSD FACILITIES
-------------------------------------------------------- Chapter 1:1.1

When the Congress enacted the Resource Conservation Recovery Act in
1976, it mandated that the administrator of EPA issue regulations
that included in its standards for hazardous waste TSD facilities
"such additional qualifications as to .  .  .  financial
responsibility as may be necessary or desirable." Under 40 C.F.R. 
264.147, these requirements were defined as liability coverage for
bodily injury and property damage to third parties resulting from
sudden, accidental and nonsudden, gradual occurrences from a
facility's operations.  Under regulations promulgated in 1982, this
coverage may take the form of a liability insurance policy, a
demonstration of assets adequate to provide EPA with assurances of
financial responsibility (financial test), or a combination of the
two.  In 1986, EPA added a third method:  a corporate guarantee by a
parent company that may be used with insurance.  In September 1988,
EPA once more expanded the range of financial options by accepting
letters of credit, surety bonds, trust funds, and nonparent company
guarantees.  Any of these mechanisms or a combination may be used to
demonstrate financial responsibility. 

Under EPA regulations, owners or operators of hazardous waste TSD
facilities are required to demonstrate--firm by firm--liability
coverage for sudden and accidental pollution incidents (such as tank
rupture or explosion) of at least $1 million per occurrence, with an
annual aggregate of at least $2 million.  In addition, owners or
operators of land disposal facilities--that is, landfills, surface
impoundments, and land treatment facilities--are required to
demonstrate coverage for gradual pollution incidents (for example,
long-term seepage into a drinking water supply) of at least $3
million per occurrence, with an annual aggregate of at least $6
million.  Total coverage for land disposal facilities is therefore at
least $4 million per occurrence, with an annual aggregate of at least
$8 million.  The amounts of coverage required apply to the owners or
operators for all facilities, not separately to each facility. 


      FINANCIAL ASSURANCE
      REQUIREMENTS FOR CLOSURE AND
      POSTCLOSURE OF TSD
      FACILITIES
-------------------------------------------------------- Chapter 1:1.2

Financial assurance required under the act for closure and
postclosure of facilities is outlined under 40 C.F.R.  264.143,
265.143, 264.145, and 265.145.  According to the regulations, owners
or operators of hazardous waste TSD facilities must develop plans for
closing their facilities.  During the closure period, landfills are
covered or capped, and equipment, structures, and soil are disposed
of or decontaminated.  TSD facilities must provide financial
assurance to ensure that possible problems stemming from closure
activities can be adequately addressed.  The financial assurance
options available to them for closure are closure insurance,
financial test, trust fund, surety bond, letter of credit, and
corporate guarantee or any combination of these.  The amount of
financial assurance that must be demonstrated is based on the cost
estimates for closure at the point in the facility's operating life
when closure would be the most expensive. 

Postclosure financial assurance applies only to land disposal
facilities (for example, landfills, surface impoundments, and land
treatments) and is normally for a 30-year period after closure. 
During this time, monitoring and maintenance activities are conducted
by owners and operators to preserve the integrity of the disposal
system.  The regulations require that owners or operators of disposal
facilities must also establish a plan for postclosure and financial
assurance for postclosure care.  Cost estimates for postclosure
monitoring and maintenance are based on projected costs for the
entire postclosure period and are adjusted annually for inflation. 
The options available for postclosure are postclosure insurance,
financial test, trust fund, surety bond, letter of credit, corporate
guarantee, or any combination. 


      UNDERGROUND STORAGE TANK
      PROGRAM
-------------------------------------------------------- Chapter 1:1.3

The underground storage tank (UST) program is similar to the program
for hazardous waste TSD facilities in that it is designed to ensure
that releases of regulated substances do not threaten human health
and the environment.\1 Like the program for hazardous waste TSD
facilities, this program allows a variety of mechanisms to be used to
meet financial assurance requirements.  However, it also makes
available the use of state cleanup funds. 

The UST program, enacted to control and prevent leaks from
underground storage tanks, is broad in scope and encourages states to
develop regulatory programs for these tanks.  According to EPA, there
were about 1.4 million underground storage tanks in 1990, the vast
majority of which are used to store petroleum products.  Less than 5
percent store hazardous substances.  UST regulations permit states to
assume liability costs and use their funds for required corrective
action, thus providing an additional mechanism to UST owners and
operators for demonstrating financial responsibility.  Unlike other
programs under the act, the UST program regulations apply to
petroleum products as well as to regulated waste.  Program
regulations also mandate that underground tanks meet specific
corrosion, installation, piping, and overfill prevention
requirements. 

As of June 1992, 29 states (58 percent) had EPA-approved state
cleanup funds for UST programs that reimburse cleanup or pay third
party liability claims.  These programs are financed by tank
registration fees and other fees on gasoline and other petroleum
products paid by UST operators and owners into the fund.  In general,
to qualify for reimbursement of state cleanup funds and liability
costs, UST owners and operators must comply with applicable state and
federal regulations. 

UST requirements are less stringent than TSD facility financial
assurance requirements, allowing a broader range of financial
mechanisms.  Under UST regulations, financial assurance is required
to cover both the cost of any required corrective action and
compensation for third party liability from accidental releases. 
Per-occurrence coverage is set at either $500,000 or $1 million,
depending on the nature of the facility operation and the quantity of
the product being handled.  Aggregate coverage is set at $1 million
or $2 million, depending on the number of USTs to be covered. 

EPA's regulations divide tank owners into four categories based on
the number of tanks they own.  Owners of 1,000 or more tanks had to
comply with EPA's financial responsibility requirements by January
1989.  Owners of at least 100 but fewer than 1,000 tanks had to
comply with this requirement by October 1989.  Finally, owners of
fewer than 100 tanks and most nonmarketers--that is, owners who do
not market petroleum products and who have a tangible net worth of
less than $20 million--had until December 31, 1993, to comply. 
According to an EPA official, EPA had extended this compliance
deadline from October 26, 1991. 

Owners and operators of underground storage tanks may comply with
financial assurance requirements in a number of ways, including all
those allowed for TSD facilities.  Other allowable mechanisms are
risk retention group coverage and state assurance.  Risk retention
groups are unique in that the individual risks of group members are
transferred to a risk pool administered by the group.  If state
assurance is used, the state agrees to provide the required
corrective action and assume liability costs.  Owners or operators
usually pay a premium to the state for both types of coverage. 


--------------------
\1 Underground storage tanks regulated under the UST program are
defined as tanks that have at least 10 percent of their volume below
ground. 


   OBJECTIVES, SCOPE, AND
   METHODOLOGY
---------------------------------------------------------- Chapter 1:2

The objectives of this report were established by the request of
Congresswoman Nancy L.  Johnson, committee member of the Subcommittee
on Health and Human Resources of the House Committee on Ways and
Means.  She asked us to obtain information on the following subjects: 

1.  the number of insurance companies that offer pollution liability
insurance;

2.  the cost associated with pollution insurance, including premiums,
deductibles, co-payments, and the costs of complying with paperwork
and other requirements;

3.  specific coverage of the policies and whether there are
preconditions (for example, environmental site assessment to prove a
clean site) for obtaining coverage;

4.  differences in the availability of insurance and its cost across
different operating facilities and among those seeking closure and
postclosure insurance;

5.  Changes in the cost and availability of pollution insurance since
GAO's 1988 report;

6.  the implications for private insurers if state funds were to be
considered an allowable mechanism to demonstrate financial
responsibility under subtitle C of the act. 

To address these subjects, we developed a questionnaire and sent it
to 674 randomly selected facilities identified by EPA as sites
treating, storing, or disposing of hazardous wastes.  This sample was
selected from a universe of 3,925 TSD facilities.  We also
interviewed officials from state insurance commissions in 9 states,
state TSD and hazardous waste branches and departments in 8 states,
and officials at EPA headquarters and regional offices.  Finally, we
interviewed officials representing five pollution insurance companies
identified most frequently as providing coverage to the TSD
facilities in our sample.  Two of these were National Union Fire
Insurance Company (a member of the American International Group) and
Planet Insurance Company (a member of the Reliance Insurance Group). 
A third provider we interviewed, Zurich-American Insurance Company,
does not presently market pollution insurance but planned to actively
market it in the near future.  The two other company officials we
interviewed indicated that they did not actively market pollution
liability insurance.  These companies accommodate a few selected
policyholders with pollution insurance; however, these are usually
firms that carry other types of coverage. 

We selected the 9 states on the basis of the number of TSD facilities
that EPA identified.  First, we ranked the 50 states and the District
of Columbia by the number of their TSD facilities.  Then we selected
the three having the most facilities (California, Pennsylvania, and
Texas), the middle 3 states (Colorado, Minnesota, and Mississippi),
and the 3 states having the smallest number of facilities (Alaska,
Nevada, and Vermont).\2

We used a survey of TSD facilities as the basic design for this study
because work performed for our 1988 report demonstrated that,
although we might obtain useful information from our interviews with
industry and government officials, only owners and operators of TSD
facilities could provide the data needed to fully address the
evaluation questions.  To help maximize our response rate, we
guaranteed confidentiality to our respondents.  We also contacted
most of the TSD facilities to verify addresses and to encourage them
to respond to the questionnaire.  We drew our sample from EPA's
listing of 4,370 TSD facilities, having subtracted the 445 state and
federal facilities that are exempt from the financial assurance
requirements.  Then we mailed our questionnaire to a stratified
random sample of 674 TSD facilities drawn from the remaining 3,925
facilities.\3 Upon receipt of the questionnaire responses, however,
we found that EPA's listing at that time overstated the universe of
operational TSD facilities by approximately 28 percent.\4 Therefore,
we estimated the actual number of nonstate and nonfederal TSD
facilities to be 2,915 and adjusted the estimates in this report
accordingly. 

We received 512 responses from our sample for an overall response
rate of 76 percent.  We performed a nonrespondent analysis on the
basis of size and type of facility and geographic location.  We
concluded that nonrespondents do not differ substantially from
respondents in these dimensions and that the nonrespondent group
contains approximately the same percentage of TSDs as the respondent
group.  Our questionnaire is reprinted in appendix I.  The details of
our nonrespondent analysis appear in appendix II. 

Analysis of questionnaire information, supported by the information
from our interviews, is the basis for chapter 2, which addresses the
first four questions on availability and cost of pollution coverage. 
Chapter 3 provides an update of our 1988 report, and chapter 4
addresses the final question regarding state funds.  We conducted our
evaluation from July 1991 through October 1992 in accordance with
generally accepted government auditing standards. 


--------------------
\2 We initially included the District of Columbia and South Dakota in
the bottom 3, but they were eliminated because the District of
Columbia does not have any TSD facilities and South Dakota has only
one.  Including South Dakota, therefore, would have hampered our
ability to provide confidentiality. 

\3 The sample was stratified to ensure coverage of states with
varying levels of financial assurance requirements and of both land
disposal and nonland disposal facilities. 

\4 Our TSD list was derived from EPA's Hazardous Waste Database
Management System (HWDMS), established in 1980, supplemented with the
Resource Conservation and Recovery Information System (RCRIS), the
new information system to which EPA was converting.  We found similar
overestimates of the TSD universe in HWDMS and RCRIS. 


   LIMITATIONS OF OUR STUDY
---------------------------------------------------------- Chapter 1:3

We discussed our estimate of the TSD universe size with EPA officials
at the conclusion of our data analysis.  The conversion to the
Resource Conservation and Recovery Information System had been
completed by then, and they suggested that if we were to create a new
sample based on the updated information now contained in the system,
our estimate of the number of facilities would be somewhat larger. 
We did not independently verify this assertion. 

Secondly, our survey attempted to identify the difficulties
experienced by TSD operators in obtaining pollution insurance.  It
does not allow us to estimate to what extent the reluctance of
insurers to provide coverage to individual TSDs is based upon
legitimate concerns over operating conditions at TSDs or the
financial stability of the owner.  It is most likely the case that
some TSDs that have gone out of business because they could not find
insurance were not operating in a manner that provided the assurance
of pollution avoidance intended by the Resource Conservation and
Recovery Act. 


   AGENCY COMMENTS AND OUR
   RESPONSE
---------------------------------------------------------- Chapter 1:4

As noted above, we discussed our findings with EPA officials and have
included their comments where appropriate.  We did not obtain written
comments on a draft of this report. 


COST AND AVAILABILITY OF POLLUTION
INSURANCE IN 1991
============================================================ Chapter 2

In this chapter, we first discuss the extent to which insurance and
the other financial assurance mechanisms allowable under the Resource
Conservation and Recovery Act are used by TSD companies.  We then
focus on the availability of pollution insurance as measured in the
terms of the first four evaluation questions:  (1) the number of
insurers offering pollution liability insurance, (2) the costs of
such insurance, (3) the extent of coverage offered, and (4)
differences in the availability of insurance for third party
liability during operation and for closure and postclosure liability. 
We also discuss other indicators of insurance availability--namely,
how survey respondents characterized the difficulty they experienced
in obtaining pollution insurance and how frequently they were unable
to obtain insurance.  We discuss the questions of insurer supply and
insurance cost and coverage first as they relate to coverage for
operating TSD companies and then in relation to TSD companies seeking
closure and postclosure insurance.  Finally, we report on differences
in insurance availability between large and small TSD companies. 

Our findings are derived from our survey of the sample of TSD
companies.  In most cases, we report our findings in terms of
companies, since financial responsibility requirements fall on the
owner or operator company, not the individual facilities.  However,
where appropriate we report some findings on the facility level. 


   THIRD PARTY LIABILITY COVERAGE
   FOR OPERATING TSD COMPANIES
---------------------------------------------------------- Chapter 2:1


      FINANCIAL ASSURANCE
      MECHANISMS USED FOR
      ACCIDENTAL COVERAGE
-------------------------------------------------------- Chapter 2:1.1

Of the seven financial mechanisms allowed under the act to meet
financial assurance requirements for accidental coverage, we found
that the pollution liability insurance mechanism was the most
frequently used for TSD operations, followed by the financial test
mechanism.  Thirty-one percent of companies used liability insurance
alone, and another 7 percent used insurance in combination with other
mechanisms.  Financial tests were used alone some 29 percent of the
time and in combination with other mechanisms another 6 percent of
the time.  Most of the remaining companies used other assurance
mechanisms either singly or in combination to meet financial
assurance requirements.  Twenty-two percent of companies made use of
the new forms of coverage allowed since 1986.\1 Despite their
acceptability to EPA, however, less than 1 percent of companies used
a surety bond to meet financial responsibility requirements for
accidental coverage.\2 Almost 8 percent had no liability coverage. 
Figure 2.1 shows the assurance mechanisms used to demonstrate
liability coverage for accidental occurrences. 

   Figure 2.1:  Financial
   Assurance Mechanisms for
   Accidental Coverage

   (See figure in printed
   edition.)


--------------------
\1 These include parent company guarantee, letter of credit, surety
bond, trust fund, and nonparent company guarantee. 

\2 During our interviews in preparation for our 1988 report, surety
officials took the position that pollution liability was inherently
unbondable.  This position appears to remain essentially unchanged. 


      FINANCIAL ASSURANCE
      MECHANISMS USED FOR GRADUAL
      COVERAGE
-------------------------------------------------------- Chapter 2:1.2

For gradual coverage, 32 percent of TSD companies used the financial
test for the coverage and 35 percent used liability insurance. 
Twenty percent of companies used the more recently allowable coverage
mechanisms, but none used surety bonds.  Figure 2.2 shows the
assurance mechanisms used to demonstrate liability coverage for
gradual occurrences. 

   Figure 2.2:  Financial
   Assurance Mechanisms for
   Gradual Coverage

   (See figure in printed
   edition.)


      AVAILABILITY OF POLLUTION
      INSURANCE
-------------------------------------------------------- Chapter 2:1.3


         NUMBER OF INSURERS
------------------------------------------------------ Chapter 2:1.3.1

A total of 24 insurance companies provided pollution liability
coverage to companies operating TSD facilities in our survey.  We
cannot be sure that all insurers were captured in our sample. 
Nevertheless, because of the diversity built into our sample design,
it is unlikely that any major pollution insurer failed to be
represented.\3 The coverage offered by these insurance companies
included both single and multiple facility coverage.  In some cases,
it was provided as separate pollution insurance coverage; in others,
pollution liability was covered as part of a comprehensive general
liability (CGL) policy.  In some cases, coverage was provided through
"fronting" policies, policies whose coverage is only nominal inasmuch
as their deductible amount is equal to the coverage offered.\4 Table
2.1 shows the number of insurers and the types of coverage they
provided to companies operating TSD facilities in our survey. 



                          Table 2.1
           
           Number of Insurers Providing Accidental,
           Gradual, and Combined Coverage in 1991\a

                          Accidental     Gradual    Combined
Type of coverage            coverage    coverage    coverage
------------------------  ----------  ----------  ----------
Single facility                   11           0           7
Multiple facility                  7           1           5
Comprehensive general              8           0           4
 liability
Fronting policy                    2           2           3
------------------------------------------------------------
\a Some insurers provide more than one type of coverage. 

Despite the number of insurers providing pollution liability
coverage, the pollution insurance market is dominated by a very few
companies.  National Union Fire Insurance Company of Pennsylvania, a
member of the American International Group, provides nearly 77
percent of the coverage identified by our survey, and Planet
Insurance Company provides another 4 percent.  The remaining coverage
is spread among the 22 other companies identified by respondents. 


--------------------
\3 Our sample was stratified to ensure representation of land
disposal and nonland-disposal TSD facilities from states that
maintained different degrees of regulatory stringency. 

\4 Fronting policies do not transfer risk from the insured to the
insurance companies for this reason.  Insurance companies sometimes
limit their risk by requiring that the insured company provide a
letter of credit equivalent to the coverage. 


         NUMBER OF POLICIES
------------------------------------------------------ Chapter 2:1.3.2

We estimate that pollution liability insurance policies covering 755
TSD facilities operated by 545 companies were issued in 1990-91.  The
majority of policies combined accidental and gradual coverage, while
196 companies had accidental coverage alone.  We found no instances
of gradual coverage unaccompanied by accidental pollution insurance. 


      COSTS OF COVERAGE
-------------------------------------------------------- Chapter 2:1.4


         PREMIUMS AND OTHER COSTS
------------------------------------------------------ Chapter 2:1.4.1

The costs of insurance reported by our respondents varied widely, as
would be expected given the varying nature and volume of the
hazardous waste they generate and store and the range in size of
their operations.  The median premiums paid in 1991 for $1,000 of
sudden and accidental, gradual, and combined coverage were $37.00,
$22.31, and $22.00, respectively.  Few survey respondents reported
paperwork or other nonpremium costs of obtaining insurance.  Of those
who did, the median additional cost reported was $3.22 for each
$1,000 of annual aggregate coverage. 


         DEDUCTIBLES
------------------------------------------------------ Chapter 2:1.4.2

The deductibles reported by respondents ranged from $5,000 to an
amount equal to that coverage.  The latter case represents "fronting
coverage," which is discussed above.  The median policy's deductible
was 10 percent of the per occurrence coverage, or $100,000 of the $1
million coverage required by the act. 


      EXTENT OF COVERAGE
-------------------------------------------------------- Chapter 2:1.5

We estimate that the total annual aggregate coverage for 1991 in the
United States amounted to $3.1 billion.  The total annual aggregate
coverage for the accidental, gradual, and combined policies was
$524,826, $119,422, and $3,087,451, respectively. 

Insurance policies often include various exclusions to coverage that
limit insurance company liability.  Insurance companies also often
require that insurance applicants submit to preconditions before they
are provided pollution liability coverage, such as improved safety
and security measures. 

The policy exclusions most frequently identified by the facilities
that purchased insurance were radioactive and toxic materials (80.7
percent of facilities); preexisting conditions, or pollution
conditions that existed prior to the inception of the policy (70.1
percent of facilities); and asbestos (50.6 percent of facilities). 
Policy exclusions reported by our respondents are outlined in figure
2.3. 

   Figure 2.3:  Exclusions for
   Accidental and Gradual Coverage

   (See figure in printed
   edition.)

Note:  PCBs are polychlorinated biphenyls. 

Of the facilities that obtained insurance, the preconditions required
most frequently by insurance companies were environmental assessments
(80.1 percent of the time), site inspections (54.8 percent of the
time), and verification of acceptable management practices such as
improving safety and security measures (49.6 percent of the time).\5
Policy preconditions are shown in figure 2.4. 

   Figure 2.4:  Preconditions for
   Accidental and Gradual Coverage

   (See figure in printed
   edition.)


--------------------
\5 Environmental assessments are audits generally performed by
engineering firms to determine risk associated with coverage. 


      DIFFICULTIES OBTAINING
      POLLUTION LIABILITY
      INSURANCE
-------------------------------------------------------- Chapter 2:1.6

Our questionnaire responses show that companies had difficulty
obtaining pollution liability insurance at a fair price.  We estimate
that nearly two thirds of TSD companies attempted to obtain pollution
insurance between 1982 and 1991 and 44 percent of these were denied
insurance at least once.  Of our respondents who had been denied
insurance during this period, 86.9 percent reported it was very
difficult or nearly impossible to obtain the coverage required by the
act, and 90.9 percent reported extreme difficulty obtaining an
acceptable range of liability coverage (that is, coverage for the
various types of activities the facilities are involved in).  Figures
2.5 and 2.6 show the degree of difficulty reported by these
respondents. 

   Figure 2.5:  Difficulty
   Obtaining an Adequate Amount of
   Pollution Liability Insurance
   Coverage

   (See figure in printed
   edition.)

   Figure 2.6:  Difficulty
   Obtaining Pollution Liability
   Insurance With an Acceptable
   Range of Liability Coverage

   (See figure in printed
   edition.)


      NUMBER OF TIMES DENIED
      POLLUTION LIABILITY
      INSURANCE
-------------------------------------------------------- Chapter 2:1.7

We estimate that 308 companies that were operating in 1991 had
attempted to obtain pollution liability insurance at some time
between 1982 and 1991.  These companies were denied coverage almost
1,500 times during this period (an average of about 4.8 times per
company).  Fewer than half of these companies had pollution insurance
in 1991. 


      REASONS FOR DIFFICULTY
      OBTAINING POLLUTION
      LIABILITY INSURANCE
-------------------------------------------------------- Chapter 2:1.8

The primary reasons that companies reported they had trouble getting
pollution insurance or were denied pollution liability insurance were
that (1) liability coverage was not available (71.4 percent) and (2)
the carrier informed them or their agent that it was getting out of
the pollution liability insurance business (64.2 percent).  Figure
2.7 shows the reasons cited to TSD companies that had trouble getting
insurance or were denied insurance. 

   Figure 2.7:  Reasons for
   Difficulty Obtaining Liability
   Insurance

   (See figure in printed
   edition.)


   CLOSURE AND POSTCLOSURE
   INSURANCE
---------------------------------------------------------- Chapter 2:2

We also collected information on the types of financial assurance
mechanisms used by TSD companies to meet the closure and postclosure
financial requirements of the act.  In this section, we provide our
estimates of companies using each allowable closure and postclosure
mechanism and the costs and difficulties associated with obtaining
closure and postclosure insurance. 


      FINANCIAL ASSURANCE
      MECHANISMS USED FOR CLOSURE
      AND POSTCLOSURE REQUIREMENTS
-------------------------------------------------------- Chapter 2:2.1

About 38.9 percent of TSD companies used the financial test alone or
in combination with other mechanisms, 25.3 percent used letters of
credit alone or in combination with other mechanisms, and 14.2
percent used parent company guarantees singly or in combination,
whereas only 1.5 percent used closure and postclosure insurance to
comply with financial responsibility requirements.  The remaining
respondents used some other mechanism such as surety bonds and trust
funds or a combination of mechanisms (excluding closure and
postclosure insurance) or had no coverage.  Figure 2.8 shows the
assurance mechanisms used singly or in combination to demonstrate
closure and postclosure coverage for 1991. 

   Figure 2.8:  Financial
   Assurance Mechanisms Used to
   Demonstrate Closure and
   Postclosure Coverage

   (See figure in printed
   edition.)


      AVAILABILITY OF CLOSURE AND
      POSTCLOSURE INSURANCE
-------------------------------------------------------- Chapter 2:2.2


         NUMBER OF INSURERS
------------------------------------------------------ Chapter 2:2.2.1

Our survey identified only one insurance company that provided
closure or postclosure insurance.  This company did not market such
insurance to TSD companies generally.  Rather, it had been created by
a TSD company as a wholly owned subsidiary to provide pollution
insurance only to its affiliated companies.  Our interviews with
insurance providers reinforced the scarcity of closure and
postclosure insurance providers.  We asked the leading providers of
pollution liability insurance which companies provided closure and
postclosure coverage, and none could identify companies that marketed
this type of coverage. 


         COST AND EXTENT OF
         COVERAGE
------------------------------------------------------ Chapter 2:2.2.2

Only 5 active companies reported having obtained closure or
postclosure insurance, all with the same insurer.  Only 3 of these
provided coverage and premium information, 1 for closure insurance
and 2 for combined closure and postclosure coverage.  The closure
insurance coverage was for $500,000, at a cost of $14.73 per
thousand.  Combined coverage was reported for $1.5 million and $1.4
million, at a cost of $66.67 and $38.50 per thousand, respectively. 
From such a small sample, we cannot form reliable estimates of total
coverage in the nation or average costs. 


         DIFFICULTY OBTAINING
         CLOSURE AND POSTCLOSURE
         INSURANCE
------------------------------------------------------ Chapter 2:2.2.3

Only a few companies even attempted to obtain closure and postclosure
insurance, and those that did had little success.  Only 20 percent of
companies attempted to obtain this coverage; 86 percent reported that
it was very difficult to nearly impossible getting adequate amounts
of coverage to comply with requirements, and 98 percent reported
similar difficulty obtaining an adequate range of coverage.  Figures
2.9 and 2.10 show the degree of difficulty these respondents
experienced attempting to obtain coverage. 

   Figure 2.9:  Difficulty
   Obtaining Adequate Closure and
   Postclosure Insurance

   (See figure in printed
   edition.)

   Figure 2.10:  Difficulty
   Obtaining Closure and
   Postclosure Insurance With an
   Acceptable Range of Liabilities

   (See figure in printed
   edition.)


      REASONS FOR DIFFICULTY IN
      OBTAINING CLOSURE AND
      POSTCLOSURE INSURANCE
-------------------------------------------------------- Chapter 2:2.3

Our respondents reported that the difficulty they encountered in
obtaining closure and postclosure insurance resulted primarily
because closure and postclosure insurance was simply not available;
the insurance companies they contacted no longer provided such
coverage, if they ever had. 


      COMPANY SIZE AND POLLUTION
      LIABILITY COVERAGE
-------------------------------------------------------- Chapter 2:2.4

We examined responses we received to our questionnaire for
differences related to company size.  Nearly half of TSD companies
had annual sales over $50 million during 1990, most of them over $100
million.  Figure 2.11 shows the distribution of annual sales for
companies in 1991. 

   Figure 2.11:  Annual Sales of
   TSD Companies

   (See figure in printed
   edition.)

We found that companies with sales over $50 million were
significantly more likely than smaller companies to meet requirements
for operating TSD companies through financial tests.  Nearly half of
all larger companies used financial tests, while only one seventh of
companies with sales under $50 million did.  Smaller companies were
more likely to use insurance (representing two thirds of all
insurance users), a parent company guarantee (70 percent), letter of
credit (85 percent), or trust fund (64 percent) or to have no
coverage (77 percent).  Figure 2.12 displays the different mechanisms
used by large and small companies. 

   Figure 2.12:  Financial
   Mechanisms Used by Large and
   Small Companies

   (See figure in printed
   edition.)

Other size-related differences also existed.  Smaller companies
reported greater difficulty in obtaining an acceptable range of
coverage than did larger companies (although both reported great
difficulty). 

Size differences are also related to whether, when, and why
facilities closed.  Facilities operated by smaller companies were
less likely to have been active at the time of our survey, and to
have closed sooner, than those operated by larger companies.  Smaller
companies were more likely to cite the difficulty of meeting the
act's financial requirements as the reason for closing than larger
companies and were less likely to cite nonfinancial requirements
(such as paperwork) as a reason for closing. 


   SUMMARY
---------------------------------------------------------- Chapter 2:3

We found 24 insurers offering some form of pollution liability
insurance.  Two insurers, however, dominate the pollution insurance
market, providing 81 percent of coverage.  We estimate total TSD
pollution liability exposure at $3.1 billion.  The average cost of
combined accidental and gradual insurance is approximately $22 per
$1,000 of annual aggregate coverage. 

Most respondents to our survey reported great difficulty in obtaining
pollution insurance, and nearly half of those who sought insurance
over the past decade reported being denied coverage at least once. 
In most cases, the reason cited for this difficulty was that their
carriers were no longer underwriting pollution liability. 

For closure and postclosure requirements, most TSD companies use
financial tests to meet the legislative requirements.  The insurance
mechanism is not a real alternative for most companies; less than 2
percent of companies use it. 

Finally, coverage availability appears to be related to company size. 
Only a quarter of small companies use financial tests.  The others
rely heavily on insurance and, less so, on the more recently
allowable financial mechanisms.  While nearly all companies reported
serious difficulty in obtaining pollution insurance, small companies
were significantly more likely to report difficulty than larger
companies. 


POLLUTION INSURANCE COST AND
AVAILABILITY FOR LAND DISPOSAL
COMPANIES IN 1991 AND 1986
============================================================ Chapter 3

Our 1988 report dealt with the availability of pollution insurance
solely for land disposal facilities and was concerned with
operational coverage, not with closure or postclosure coverage.  The
current report responds to a broader request--namely, to examine the
availability of insurance for all TSD facilities (not just those
categorized as land disposal facilities) and for both types of
coverage.\1 In chapter 2, we discussed these issues as they pertain
to all TSD companies and, with respect to land disposal companies, we
presented the findings from our 1991 survey regarding the cost and
availability of gradual pollution insurance, the additional form of
coverage required of this group of TSD companies.  In this chapter,
we compare these findings with the information we developed from our
1986 survey of land disposal facilities.  We discuss respondent data
on accidental and gradual coverage, including annual sales of land
disposal companies, the financial mechanisms used to meet
requirements under the Resource Conservation and Recovery Act, number
of accidental and gradual policies issued, amount and cost of
coverage, use of fronting policies, difficulties facilities have
obtaining coverage, and information on exclusions and preconditions
to coverage. 


--------------------
\1 For the definition of land disposal facilities and a summary of
their more stringent liability coverage requirements, see chapter 1. 


   ANNUAL SALES FOR LAND DISPOSAL
   COMPANIES
---------------------------------------------------------- Chapter 3:1

The size of land disposal companies does not appear to have changed
substantially since 1986.  About half of the companies in both our
surveys reported annual sales below $50 million, half above that
figure.  Figure 3.1 presents annual sales of land disposal facilities
for 1991 and 1986. 

   Figure 3.1:  Annual Sales of
   Land Disposal Companies

   (See figure in printed
   edition.)


   FINANCIAL ASSURANCE MECHANISMS
   USED BY LAND DISPOSAL COMPANIES
---------------------------------------------------------- Chapter 3:2

Since our last report, EPA regulations have expanded the range of
available financial mechanisms to demonstrate TSD liability coverage. 
At that time, liability insurance and the financial test were the
only mechanisms available to demonstrate coverage.  After that time,
financial test, liability insurance, parent company guarantee, letter
of credit, surety bond, trust fund, and nonparent company guarantee
became allowable.  At our latest survey, financial test and liability
insurance remained the most common financial mechanisms used by land
disposal companies to comply with the act, amounting to nearly three
quarters of all mechanisms used. 

In 1991, the financial test was used for accidental coverage by 31.9
percent of the companies, while liability insurance was used by 35.5
percent, and another 1.5 percent of companies used a combination of
the two.  Nearly 15 percent used parent company guarantees, and 2
percent used letters of credit for accidental coverage.  We found no
instances of surety bond use in our sample of land disposal
companies.  About 7 percent reported having no coverage. 

Similarly, for gradual coverage, 35.3 percent used financial tests
and 31.6 percent used liability insurance.  Some 15 percent of
companies used parent company guarantees and about 2 percent used
letters of credit. 

Figure 3.2 depicts the distribution of financial mechanism choices
for accidental coverage in 1991 and 1986, and figure 3.3 compares
gradual coverage mechanisms for the 2 years.  These comparisons
suggest that, if allowing the use of other financial assurance
mechanisms was expected to alleviate the dependence on insurance,
that expectation has been disappointed.  The use of the insurance
mechanism has remained relatively unchanged or even increased over
the 5-year period.  It appears that the more recently permissible
forms of coverage have replaced financial tests and have not
substantially affected the use of insurance. 

   Figure 3.2:  Mechanisms Used by
   Land Disposal Companies for
   Accidental Coverage

   (See figure in printed
   edition.)

Note:  The 1986 survey did not distinguish between sudden and gradual
coverage. 

   Figure 3.3:  Mechanisms Used by
   Land Disposal Companies for
   Gradual Coverage

   (See figure in printed
   edition.)

Note:  The 1986 survey did not distinguish between sudden and gradual
coverage. 


   FRONTING POLICIES
---------------------------------------------------------- Chapter 3:3

A higher percentage of land disposal companies in 1991 reported the
use of fronting policies to meet the act's requirements for liability
coverage than were reported in 1986.  We estimate that in 1991, 5.9
percent of land disposal companies used fronting policies to
demonstrate coverage for accidental and gradual occurrences.  In
1986, we found only 1.6 percent of companies using fronting policies. 


   AMOUNT AND COST OF COVERAGE
---------------------------------------------------------- Chapter 3:4

In 1986, 70 policies insuring the companies we surveyed provided
aggregate annual accidental coverage of $1.4 billion.  Seventeen
policies provided aggregate annual coverage for gradual occurrences
of $212 million, and 57 policies provided a combined aggregate annual
coverage of $1 billion. 

We estimate that in 1991, 37 land disposal companies had a total
annual aggregate accidental coverage of $97.4 million.  Fourteen
companies had separate coverage totaling $129 million for gradual
occurrences, and 160 companies had combined accidental and gradual
occurrences of $1.1 billion.  The median cost reported for this
insurance was $25.41 for $1,000 of annual aggregate coverage,
compared with the $19.63 per thousand we found for 1986.\2


--------------------
\2 The 1986 costs have not been adjusted for inflation, since they
represent the cost for identical amounts of coverage as in 1991. 
Such an adjustment would make the 1986 and 1991 costs nearly
identical but would not represent the diminished value of that
coverage in 1991. 


   DIFFICULTY OBTAINING POLLUTION
   LIABILITY INSURANCE
---------------------------------------------------------- Chapter 3:5

Our analysis suggests that land disposal companies in 1986
encountered similar difficulty in 1991 obtaining pollution liability
insurance.  We asked both sets of respondents to rank the degree of
difficulty they had experienced in obtaining an adequate coverage
amount and an acceptable range of coverage on a one-to-five scale
representing ascending levels of difficulty.  In our recent survey,
land disposal companies assigned mean difficulty scores of 4.3 and
4.5 to these dimensions.  Five years earlier, our respondents had
reported scores of 3.9 and 4.0. 

According to respondents, the primary reasons that land disposal
companies had trouble getting pollution liability insurance or were
denied pollution liability insurance in 1991 were that insurance was
not available and that the insurance carrier contacted was getting
out of the pollution liability insurance business.  In 1986,
respondents reported similar reasons for their denial of insurance. 


   EXCLUSIONS AND PRECONDITIONS
---------------------------------------------------------- Chapter 3:6

Our survey in 1986 revealed a wide variety of pollution insurance
policy exclusions, including preexisting conditions and asbestos.  In
1991, the exclusions most frequently identified by land disposal
facilities were radioactive and toxic materials, preexisting
conditions, and asbestos. 


   SUMMARY
---------------------------------------------------------- Chapter 3:7

When we compare the results of our two surveys for the portion of TSD
companies made up of land disposal facilities, we find that the
availability and cost of pollution liability coverage has not eased
since 1986 and may have become somewhat worse.  It remains very
difficult to obtain and, if available at all, it was in 1991 at least
as costly as it had been in 1986.  The extension of acceptable
financial assurance mechanisms to include other forms has not tended
to decrease the dependence of land disposal companies on insurance. 
In addition, more of these companies appear to be opting for fronting
policies that offer little true coverage. 


IMPLICATIONS OF USING STATE
CLEANUP FUNDS
============================================================ Chapter 4

In this chapter, we address our sixth evaluation issue:  the
implications of TSD facilities using state cleanup funds as a
financial assurance mechanism under the Resource Conservation and
Recovery Act.  As we discussed in chapter 1, the UST program allows
the use of such funds to meet its requirements that operators
demonstrate their financial ability to clean up pollution damage from
storage tank leaks and to pay third party liability claims.  This
financial assurance mechanism is not currently available to hazardous
waste TSD companies. 

To address this issue, first we examined the specific provisions of
the UST program and the current status of state cleanup fund use. 
Second, we surveyed TSD facility officials to determine whether they
would use state cleanup funds if available to meet the financial
assurance requirements.  Third, we interviewed officials from 5
insurance companies on the effect state cleanup funds would have on
their companies and the industry in general.  Finally, we interviewed
various state and EPA officials to obtain their views on the
feasibility of creating state cleanup funds for use by TSD facilities
for complying with the act's financial assurance requirements.  In
the following pages, we discuss how the states are implementing the
state cleanup provisions of the UST program and we compare the
relevant characteristics of TSD and UST facilities.  Then we discuss
the likelihood of TSD companies making use of this mechanism if it
were allowed and how insurers and state officials view the
desirability and feasibility of applying this UST provision to TSD
facilities. 


   UST USE OF STATE FUNDS
---------------------------------------------------------- Chapter 4:1

Owners and operators of underground storage tanks must meet federal
financial assurance requirements just as for TSD facilities. 
However, a state cleanup fund is a mechanism made available by EPA to
UST owners for demonstrating financial responsibility to cover
cleanup and third party claims that is not available to TSD owners
and operators.  Many different sources can be used to finance a state
fund.  These include licensing and tank fees, bond issues, and
risk-based premiums.  The size of cleanup funds varies from state to
state.  For example, in 1991 Vermont's fund contained $200,000,
whereas Colorado's fund contained $15 million. 

Before a state can use a cleanup fund as an alternative financial
assurance mechanism, EPA must approve it.  EPA requires the states to
submit detailed plans specifying the funding source, the amount of
the fund, coverage provided, eligibility for use of the fund, and
sunset provisions. 

EPA must approve the proposed funds before owners and operators can
use them to satisfy federal financial responsibility requirements. 
However, EPA may approve the state funds on an interim basis before
final approval is given.  According to EPA, as of June 1992, 29
states had EPA-approved UST cleanup funds to pay for cleanup and
third party claims.\1

Figure 4.1 and table 4.1 show the states that have received EPA
approval, the states that have submitted plans, those that have not
submitted plans, and those that have no program. 

   Figure 4.1:  State Financial
   Assurance Fund Programs

   (See figure in printed
   edition.)



                          Table 4.1
           
           Status of State Financial Assurance Fund
                 Programs as of June 1, 1992

Approved       Submitted      Not submitted  No program
-------------  -------------  -------------  ---------------
Alabama        California     Alaska         District of
                                             Columbia

Arkansas       Colorado       Arizona        Hawaii

Connecticut    Florida        Delaware       Maryland

Georgia        Kentucky       Indiana        New Jersey

Illinois       Nebraska       Missouri       New York

Idaho          Virginia       Pennsylvania   Oregon

Iowa           Wisconsin      West Virginia  Rhode Island

Kansas                                       Washington

Louisiana

Maine

Massachusetts

Michigan

Minnesota

Mississippi

Montana

Nevada

New Hampshire

New Mexico

North
Carolina

North Dakota

Ohio

Oklahoma

South
Carolina

South Dakota

Tennessee

Texas

Utah

Vermont

Wyoming

============================================================
29             7              7              8
------------------------------------------------------------
Source:  Environmental Protection Agency. 

Most states require that a deductible be met before funds are
released.  UST owners and operators must be in compliance with
applicable state and federal regulations, including payment of
applicable fees in some states, in order to receive state cleanup
funds. 


--------------------
\1 Some cleanup funds such as that in Texas pay only for cleanup and
not third party claims. 


   COMPARISON OF TSD FACILITY AND
   UST PROGRAMS
---------------------------------------------------------- Chapter 4:2

Owners and operators of petroleum USTs may use a number of mechanisms
to comply with financial assurance requirements, including all those
allowed for TSD facilities:  pollution liability insurance, financial
test, letter of credit, and so on.  Although some similarities exist
between TSD facility and UST programs, they are overshadowed by the
differences in the facilities regulated (for example, type of
facility, population size, and substances handled).  Table 4.2 shows
the characteristics that make the TSD facility program different and
more complex than the UST program. 



                          Table 4.2
           
              Comparison of TSD Facility and UST
                           Programs

                    TSD program         UST program
------------------  ------------------  --------------------
EPA authority       RCRA, subtitle C\a  RCRA, subtitle I\a

Population size     About 2,915         1,400,000 tanks that
                    facilities that     primarily store
                    treat, store, and   petroleum products
                    dispose of
                    hazardous waste

Types of            Diverse: many       Homogeneous: similar
facilities          different types     underground tanks
regulated           and sizes that      that store petroleum
                    treat, store, and   and other products
                    dispose of all
                    hazardous waste

Types of            All hazardous       Petroleum products
substances handled  waste (e.g., PCBs,  (e.g., gasoline,
                    asbestos,           oil, and many
                    radioactive and     hazardous chemicals)
                    toxic waste)
------------------------------------------------------------
\a RCRA = Resource Conservation and Recovery Act. 


   LIKELIHOOD OF STATE CLEANUP
   FUND USE BY TSD FACILITIES
---------------------------------------------------------- Chapter 4:3

Overall, we found that about 50 percent of all TSD facilities would
use state cleanup funds if they were available.  TSD facilities with
a tangible net worth of $50 million or less are the most likely to
use state funds.  Of those, 59.1 percent would use state cleanup
funds.  Of facilities with a tangible net worth between $51 million
and $100 million, 59.6 percent would use the funds.  Of facilities
with a tangible net worth greater than $100 million, only 26 percent
would use the funds.  By projecting our sample data to the universe
of TSD facilities, we estimate that about 1,064 facilities would use
the state cleanup fund as a financial assurance mechanism.  Moreover,
of the 915 TSD facilities projected to use pollution insurance, 554
would probably use state cleanup funds if allowed as a financial
assurance mechanism. 

Our survey also revealed that smaller TSD facilities (those with
annual sales of $50 million or less) were less likely to use
financial tests and more likely to depend on liability insurance and
the more recently allowable mechanisms than were larger companies. 
(See chapter 2.) This finding is consistent with the comments by some
respondents to our survey that state cleanup funds would more likely
be used by smaller TSD facilities. 


   VIEWS OF POLLUTION INSURANCE
   PROVIDERS
---------------------------------------------------------- Chapter 4:4

Our survey data show that the two major providers of TSD pollution
liability insurance policies to our sample of TSD facilities were
National Union Fire Insurance Company and Planet Insurance Company. 
A third, Zurich-American Insurance Company, recently entered the
pollution insurance market and plans to actively underwrite pollution
liability insurance.  Three of the 5 companies interviewed do not
favor the use of state cleanup funds for TSD facilities and believe
that states should not implement state cleanup funds for TSD
facilities. 

According to some insurance company representatives we interviewed, a
reduction in policy coverage and higher premiums are potential
effects if state cleanup funds are used by TSD facilities.  One of
the 3 providers indicated that the states should not provide state
cleanup funds because a taxpayer-supported fund provides a
disincentive for a private market solution to the protection of
public health and the environment.  The same provider also indicated
that the states would be in the position of underwriting insurance
and that they are not qualified to do this.  Another of the 3
providers claimed that state funds constitute direct competition from
the government and may drive some insurance providers out of
business.  Three of the 5 providers foresee a reduction or
elimination of coverage if state funds are used by TSD facilities. 


   VIEWS OF STATE ENVIRONMENTAL
   OFFICIALS
---------------------------------------------------------- Chapter 4:5

To obtain opinions on the viability of using state cleanup funds for
TSD facilities, we selected TSD facility and UST officials from 9
states on the basis of the number of TSD facilities that EPA
identified in those states.  First, we ranked the 50 states and the
District of Columbia by the number of TSD facilities in each state. 
Then we selected the 3 having the most facilities (California,
Pennsylvania, and Texas), the middle 3 states (Colorado, Minnesota,
and Mississippi), and the three states having the least number of
facilities (Alaska, Nevada, and Vermont).\2 Some officials believe
that state cleanup funds would be feasible if an equitable funding
mechanism were developed (for example, a method by which a common fee
could be assessed TSD facilities).  However, these officials are not
clear about how such funds would be collected. 

Four of the 8 TSD state officials we contacted indicated that state
cleanup funds would be feasible under the TSD program and would
assist smaller facilities in complying with the act's requirements if
an equitable method of funding could be developed.  According to
these officials, some parallels exist between the UST and TSD
programs, but a funding mechanism like that used for the UST program
might not necessarily work for the TSD program.  For example, the
size of the UST state cleanup fund varies from state to state, with
some states having funds of less than $15 million.  However,
according to EPA officials, a TSD facility cleanup fund would have to
be considerably larger because one disaster could potentially wipe
out the fund and because of the different substances handled by TSD
facilities.  Because of their limited knowledge about the UST
program, three officials did not comment on the feasibility of using
state cleanup funds for TSD facilities. 

Three of the 9 state UST officials we interviewed commented that
state cleanup funds for TSD facilities would be feasible.  Although
some of these officials were not too familiar with TSD programs, some
pointed out that because of common fees that can be levied against
all tank owners, it would be easier to administer a state UST program
than a more complicated TSD program.  For example, under the UST
program, although there are about 1.4 million tanks, those tanks
generally contain petroleum products such as gasoline and oil.  The
TSD program, however, encompasses a multitude of facility types that
treat, store, and dispose of a variety of substances such as PCBs,
asbestos, or radioactive and toxic waste. 


--------------------
\2 California does not have authorization from EPA to implement the
subtitle C program.  Therefore, we obtained information from the EPA
Region 10 office. 


   SUMMARY AND CONCLUSIONS
---------------------------------------------------------- Chapter 4:6

More than half the states currently have EPA-approved state cleanup
funds to cover the financial responsibility of UST owners and
operators in the case of pollution damage.  They are funded from
various sources, and their size varies from state to state.  Although
the financial responsibility aspects of the UST program are in many
ways similar to those of the regulations for TSD facilities, the
differences among the programs, particularly in the types of
facilities and the types of materials regulated, are substantial. 
For the most part, USTs simply store petroleum products.  TSD
facilities perform a number of different operations on a wide variety
of hazardous wastes. 

If a state cleanup fund became an available financial assurance
mechanism for TSD facilities, many TSD facilities, particularly
smaller ones, would use them.  Insurance companies, however, view
such a mechanism as inappropriate government intrusion into the
private marketplace and suggest that it would eventually result in
the decreasing availability or increased cost of pollution insurance. 
While some state environmental officials believe that such a
mechanism might be feasible and would help small TSD facilities, all
agreed that a TSD state cleanup fund program would be much more
difficult to design and administer than its UST analogue. 

We conclude, therefore, that because of the diverse types of TSD
facilities and the wide range of hazardous wastes they treat, store,
and dispose of, it will be difficult to establish an equitable
funding system and reimburse TSD facilities for cleanup and third
party claims.  Any cleanup fund would have to take into account the
variety of threats posed to public health and to the environment
based on the type of contaminant and facility activities (treat,
store, and dispose) so that fees would be assessed equitably. 
However, the development of a funding system would be complex, and
its general acceptance within the hazardous waste community and by
the general public would entail lengthy consultation and
deliberation. 




(See figure in printed edition.)Appendix I
QUESTIONNAIRE
============================================================ Chapter 4



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NONRESPONDENT ANALYSIS
========================================================== Appendix II

We contacted 106 of the 162 nonrespondents to determine whether
nonrespondents were TSD facilities or not.  The remaining 56
facilities could not be contacted because of no forwarding addresses,
unlisted numbers, and the like.  We specifically contacted 68
nonrespondents from disposal and nondisposal facilities from the
states having subtitle C regulations equivalent to EPA's.  We also
contacted 38 disposal and nondisposal facility nonrespondents from
states with regulations more stringent than EPA's.  EPA and state
officials reported that 44 states had regulations equivalent to EPA's
and 6 states had regulations more stringent than EPA's.  Facilities
were assigned the codes of EQD for equivalent disposal, EQN for
equivalent nondisposal, MSD for more stringent disposal, and MSN for
more stringent nondisposal.  Our analysis shows that the
nonrespondent data were similar to those for respondents.  Thus, the
similarities between respondents and nonrespondents make us confident
that the nonrespondents would have provided similar data. 

Tables II.1 and II.2 show that of the 674 questionnaires mailed, we
received 512 responses.  Of this number, 368 (71.9 percent) were TSD
facilities and 144 (28.1 percent) were not.  The data also show that
there were 162 nonrespondents.  Of this number, we contacted 106 by
phone and determined that 74 (69.8 percent) were TSD facilities and
32 (30.2 percent) were not.  We were unable to contact the remaining
56 facilities. 



                          Table II.1
           
                  Questionnaire Respondents

                                     TSD     Non-TSD
              Questionnaires  respondent  respondent
Stratum               mailed           s           s   Total
------------  --------------  ----------  ----------  ------
EQN                      218         133          44     177
EQD                      216         117          41     158
MSN                      134          59          39      98
MSD                      106          59          20      79
============================================================
Total                    674         368         144     512
                                   71.9%       28.1%
------------------------------------------------------------


                          Table II.2
           
                 Questionnaire Nonrespondents

                     TSD       Non-TSD    Facilities
              facilities    facilities           not
Stratum        contacted     Contacted     contacted   Total
----------  ------------  ------------  ------------  ------
EQN                   22             5            14      41
EQD                   26            15            17      58
MSN                   15             8            13      36
MSD                   11             4            12      27
============================================================
Total                 74            32            56     162
                   69.8%         30.2%
------------------------------------------------------------
From the 106 facilities, we also analyzed the range of annual sales
for 57 of the nonrespondents that provided us with annual sales
information.  Our analysis shows that about 50 percent of the TSD
facility nonrespondents had annual sales of less than $50 million. 
This percentage is similar to that reported by TSD facility
respondents with annual sales of less than $50 million. 

Table II.3 shows the annual sales for nonrespondents in equivalent
states (EQD and EQN) and for more stringent states (MSD and MSN). 



                          Table II.3
           
                Annual Sales of Nonrespondents

          Less
          than     $10-     $51-   More than       Not
Strat      $10      $50     $100        $100  availabl  Tota
um     million  million  million     million         e     l
-----  -------  -------  -------  ----------  --------  ----
EQD          6        4        1           4         3    18
EQN          6        6        2           5         3    22
MSD          0        2        1           3         0     6
MSN          4        2        1           3         1    11
============================================================
Total       16       14        5          15         7    57
------------------------------------------------------------
In addition, we determined the geographic location of respondents and
nonrespondents by EPA region.  The data show that the highest
response rates were from Regions 7 and 8, both of which had a
90-percent or higher response rate.  The lowest response rate was
from Region 2.  Table II.4 shows the geographic distribution of
respondents and nonrespondents by EPA region. 



                          Table II.4
           
             Geographic Location of Questionnaire
                Respondents and Nonrespondents

                              Number
                     Total        of     Number of
              questionnair  response  nonresponden  Response
EPA region\a     es mailed         s            ts      rate
------------  ------------  --------  ------------  --------
1                      172       135            37     78.5%
2                       80        52            28      65.0
3                      111        82            29      73.9
4                       68        50            18      73.5
5                      109        86            23      78.9
6                       49        36            13      73.5
7                       26        24             2      92.3
8                       10         9             1      90.0
9                       35        27             8      77.1
10                      14        11             3      78.6
============================================================
Total                  674       512           162     76.0%
------------------------------------------------------------
\a For states included in each region, see table II.5. 



                          Table II.4
           
                         EPA Regions

Region              State
------------------  ----------------------------------------
1                   Connecticut
                    Maine
                    Massachusetts
                    New Hampshire
                    Rhode Island
                    Vermont

2                   New Jersey
                    New York
                    Puerto Rico

3                   Delaware
                    District of Columbia
                    Maryland
                    Pennsylvania
                    Virginia
                    West Virginia

4                   Alabama
                    Florida
                    Georgia
                    Kentucky
                    Mississippi
                    North Carolina
                    South Carolina
                    Tennessee

5                   Illinois
                    Indiana
                    Michigan
                    Minnesota
                    Ohio
                    Wisconsin

6                   Arkansas
                    Louisiana
                    New Mexico
                    Oklahoma
                    Texas

7                   Iowa
                    Kansas
                    Missouri
                    Nebraska

8                   Colorado
                    Montana
                    North Dakota
                    South Dakota
                    Utah
                    Wyoming

9                   Arizona
                    California
                    Hawaii
                    Nevada

10                  Alaska
                    Idaho
                    Oregon
                    Washington
------------------------------------------------------------

MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix III


   PROGRAM EVALUATION AND
   METHODOLOGY DIVISION
------------------------------------------------------- Appendix III:1

Robert E.  White, Assistant Director
Harry M.  Conley III, Sampling Statistician
Brian Keenan, Project Adviser
G.  Mark Schoepfle, Project Adviser


   DENVER REGIONAL OFFICE
------------------------------------------------------- Appendix III:2

Arthur Gallegos, Project Manager
James D.  Espinoza, Deputy Project Manager
Cynthia C.  Schilling, Reports Analyst
Tammy S.  Olmedo, Computer Programmer Analyst


BIBLIOGRAPHY
============================================================ Chapter 1

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U.S.  Environmental Protection Agency.  RCRA Orientation Manual. 
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U.S.  General Accounting Office.  Hazardous Waste:  Issues
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U.S.  General Accounting Office.  Superfund:  Insuring Petroleum
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U.S.  General Accounting Office.  Hazardous Waste:  The Cost and
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U.S.  General Accounting Office.  Ability of Underground Petroleum
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U.S.  General Accounting Office.  Underground Petroleum Tanks: 
Owners' Ability to Comply with EPA's Financial Responsibility
Requirements, GAO/RCED-90-167FS.  Washington, D.C.:  July 1990. 

U.S.  General Accounting Office.  Insurance Regulation:  Assessment
of the National Association of Insurance Commissioners,
GAO/T-GGD-91-37.  Washington, D.C.:  May 1991. 

