DEPARTMENT OF PUBLIC HEALTH AND ENVIRONMENT

Solid and Hazardous Waste Commission/Hazardous Materials and Waste Management Division

6 CCR 1007-3

hazardous waste

Amendment of 6 CCR 1007-3, Part 266 Financial Requirements

(Adopted by the Solid and Hazardous Waste Commission on May 20, 2014)

1)	Amend Section 266.11 by deleting and reserving paragraph (f) and adding a definition of “Captive Insurance Company” at paragraph (i) to read as follows: 

§ 266.11 Definitions of terms as used in this Part.
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(f) [Reserved] 
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(i) "Captive Insurance Company" means a closely-held company owned by one or more organizations or parents, whose original purpose was and may continue to be, to insure some or all of the risks of shareholders or affiliated organizations.

2)	Revise paragraphs (a), (b) and (c) of Section 266.14 to read as follows:  

§ 266.14 Financial assurance for closure and/or post closure.

(a) An owner or operator of each facility, by the effective date of these regulations, must establish financial assurance for closure, and if applicable, post closure of the facility.  All hazardous waste facilities needing to implement post-closure care must initially provide enough financial assurance to provide for 30 years of post-closure care, maintenance, and monitoring.
 
(b) The owner and/or operator of each facility must choose from the options as specified in paragraphs (c) through (j) of this section.

(c) Closure and/or Post Closure Trust Fund.

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3)	Revise Section 266.14(h) {Closure and/or Post Closure Insurance} to read as follows:  

§ 266.14 Financial assurance for closure and/or post closure.

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(h) Closure and/or Post Closure Insurance.

(1) An owner or operator may satisfy the requirements of this section by obtaining closure and/or post closure insurance which conforms to the requirements of this paragraph and submitting a certificate of such insurance to the Department.  An owner or operator of a new facility must submit a copy of the insurance policy and all endorsements to the Department at least 90 days before the date on which hazardous waste is first received for treatment, storage, or disposal, and must submit the certificate of insurance to the Department at least 30 days before the date on which hazardous waste is first received for treatment, storage, or disposal.  If an owner or operator changes a current insurance policy, the owner or operator must submit a copy of the proposed insurance policy and all endorsements to the Department at least 90 days before changing to a new insurance policy. The insurance must be effective before this initial receipt of hazardous waste.  

(2) The insurer must be licensed to transact the business of insurance or be eligible to provide insurance as an excess or surplus lines insurer, in one or more states and comply with the Title 10 Insurance Code, C.R.S., as amended. 

(3) The owner or operator shall submit annually to the Department on the anniversary of the insurance policy the following information regarding the insurer’s qualifications.

(i) The most recent A.M. Best rating of A- or better for the insurer; and

(ii) Documentation demonstrating that the insurer has capital and surplus of at least one hundred million dollars in excess of all current policy liabilities.

(4) The owner or operator of a facility using a Captive Insurance Company, as defined in § 266.11(i), must do the following:

(i) Annually submit to the Department on the anniversary of the insurance policy, items specified in § 266.14(h)(3)(i) and(ii);

(ii) Utilize a Captive Insurance Company that is domiciled in the State of Vermont;

(iii) Annually submit to the Department the Annual Certificate of Good Standing for the Captive Insurance Company issued by the Department of Financial Regulation of Vermont; and

(iv) The owner or operator or Captive Insurance Company shall not defund the captive insurance policy without providing a 180 day notice to the Department of their intent to defund, and having in place another mechanism allowed in § 266.14.
	
(5) The Department may disallow use of the insurer or the Captive Insurance Company by the owner or operator if the applicable requirements of § 266.14(h)(3) and (4) are not met.

(6) The wording of the certificate of insurance must be identical to the wording specified in § 266.18(h).

(7) The closure and/or post closure insurance policy must be issued for a face amount at least equal to the current closure and/or post closure cost estimate, except as provided in § 266.14(j).  The term "face amount" means the total amount the insurer is obligated to pay under the policy.  Actual payments by the insurer will not change the face amount, although the insurer's future liability will be lowered by the amount of the payments.

(8) The closure and/or post closure insurance policy must guarantee that funds will be available to close or provide post closure care of the facility whenever final closure and/or post closure occurs.  The policy must also guarantee that once final closure and/or post closure begins, the insurer will be responsible for paying out funds, up to an amount equal to the face amount of the policy, upon the direction of the Department, to such party or parties as the Department specifies.

(9) Closure and post closure care reimbursements.
 
(i) After beginning partial or final closure, an owner or operator or another person authorized to perform closure may request reimbursements for closure expenditures by submitting itemized bills to the Department.  The owner or operator may request reimbursements for partial closure only if the remaining value of the policy is sufficient to cover the maximum costs of closing the facility over its remaining operating life.  Within 60 days after receiving bills for closure activities, the Department will instruct the insurer to make reimbursements in such amounts as the Department specifies in writing if the Department determines that the partial or final closure expenditures are in accordance with the approved closure plan, or otherwise justified.  If the Department has reason to believe that the maximum cost of closure over the remaining life of the facility will be significantly greater than the face amount of the policy, it may withhold reimbursements of such amounts as it deems prudent until it determines, in accordance with § 266.14(l), that the owner or operator is no longer required to maintain financial assurance for final closure of the facility.  If the Department does not instruct the insurer to make such reimbursements, it will provide the owner or operator with a detailed written statement of reasons.
 
(ii) An owner or operator or any other person authorized to conduct post closure care may request reimbursements for post closure care expenditures by submitting itemized bills to the Department.  Within 60 days after receiving bills for post closure care activities, the Department will instruct the insurer to make reimbursements in those amounts as the Department specifies in writing, if the Department determines that the post closure care expenditures are in accordance with the approved post closure plan or otherwise justified.  If the Department does not instruct the insurer to make such reimbursements, it will provide the owner or operator with a detailed written statement of reasons.

(10) The owner or operator must maintain the policy in full force and effect until the Department consents to termination of the policy by the owner or operator as specified in paragraph (h) (15) of this section.  Failure to pay the premium, without substitution of alternate financial assurance as specified in this section, will constitute a violation of these regulations, warranting such remedy as the Department deems necessary.  Such violation will be deemed to begin upon receipt by the Department of a notice of future cancellation, termination, or failure to renew due to nonpayment of the premium, rather than upon the date of expiration.

(11) Each policy must contain a provision allowing assignment of the policy to a successor owner or operator.  Such assignment may be conditional upon consent of the insurer, provided such consent is not unreasonably refused.

(12) The policy must provide that the insurer may not cancel, terminate, or fail to renew the policy except for failure to pay the premium.  The automatic renewal of the policy must, at a minimum, provide the insured with the option of renewal at the face amount of the expiring policy.  If there is a failure to pay the premium, the insurer may elect to cancel, terminate, or fail to renew the policy by sending notice by certified mail to the owner or operator and the Department.  Cancellation, termination, or failure to renew may not occur, however, during the 120 days beginning with the date of receipt of the notice by both the Department and the owner or operator, as evidenced by the return receipts.  Cancellation, termination, or failure to renew may not occur and the policy will remain in full force and effect in the event that on or before the date of expiration:

(i) The Department deems the facility abandoned; or

(ii) The permit is terminated or revoked or a new permit is denied; or

(iii) Closure is ordered by the Department or a State or other court of competent jurisdiction; or
 
(iv) The owner or operator is named as debtor in a voluntary or involuntary proceeding under Title 11 (Bankruptcy), U.S. Code; or

(v) The premium due is paid.

(13) Whenever the current closure and/or post closure cost estimate increases to an amount greater that the face amount of the policy, the owner or operator, within 60 days after the increase, must either cause the face amount to be increased to an amount at least equal to the current closure and/or post closure cost estimate and submit evidence of such increase to the Department, or obtain other financial assurance as specified in this section to cover the increase.  Whenever the current closure and/or post closure cost estimate decreases, the face amount may be reduced to the amount of the current closure and/or post closure cost estimate following written approval by the Department.

(14) Commencing on the date that liability to make payments pursuant to the post closure insurance policy accrues, the insurer will thereafter annually increase the face amount of the policy.  Such increase must be equivalent to the face amount of the policy, less any payments made, multiplied by an amount equivalent to 85 percent of the most recent investment rate or of the equivalent coupon issue yield announced by the U.S. Treasury for 26 week Treasury securities.

(15) The Department will give written consent to the owner or operator that he/she may terminate the insurance policy when:

(i) An owner or operator substitutes alternate financial assurance as specified in this section; or

(ii) The Department releases the owner or operator from the requirements of this section in accordance with § 266.14(l).

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4)	Delete and reserve Section 266.14(i) {Financial Test and Guarantee for Closure and/or Post Closure} to read as follows:  

§ 266.14 Financial assurance for closure and/or post closure.

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(i) [Reserved]  
 
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5)	Delete and reserve Section 266.16(f) {Financial Test for Liability Coverage} to read as follows:  

§ 266.16  Liability Requirements.

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(f) [Reserved]  

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6)	Delete and reserve Section 266.16(g) {Guarantee for liability coverage} to read as follows:  

§ 266.16  Liability Requirements.

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(g) [Reserved]  

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7)	Revise Section 266.16(h) {Insurance for liability coverage} to read as follows:  
§ 266.16  Liability Requirements.

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(h) Insurance for liability coverage.

(1) An owner or operator may demonstrate the required liability coverage by having liability insurance as specified in this subsection.

(2) Each insurance policy must be evidenced by a Certificate of Liability Insurance.  The wording of the certificate of insurance must be identical to the wording specified in § 266.18(h).  The owner or operator must submit a signed duplicate original of the certificate of insurance to the Department.  If requested by the Department, the owner or operator must provide a signed duplicate of the insurance policy.  An owner or operator of a new facility must submit the signed duplicate original of the Certificate of Liability Insurance to the Department at least 60 days before the date on which hazardous waste is first received for treatment, storage, or disposal.  The insurance must be effective before this initial receipt of hazardous waste.

(3) Insurance for liability coverage must meet the requirements specified in § 266.14(h)(2)-(5).

(4) The insurance afforded with respect to such occurrences is subject to all of the terms and conditions of the policy; provided, however, that any provisions of the policy inconsistent with subsections (i) through (v) of this Paragraph (4) are amended to conform with subsections (i) through (v);

(i) Bankruptcy or insolvency of the insured shall not relieve the Insurer of its obligations under the policy. 

(ii) The Insurer is liable for the payment of amounts within any deductible applicable to the policy, with a right of reimbursement by the insured for any such payments made by the Insurer.  

(iii) Whenever requested by the Department, the Insurer agrees to furnish to the Department a signed duplicate original of the policy.

(iv) Cancellation of the insurance policy whether by the Insurer or the insured, a parent corporation providing insurance coverage for its subsidiary, or by a firm having an insurable interest in and obtaining liability insurance on behalf of the owner or operator of the hazardous waste management facility, will be effective only upon written notice and only after the expiration of sixty (60) days after a copy of such written notice is received by the Department.
 
(v) Any other termination of the insurance policy will be effective only upon written notice and only after the expiration of thirty (30) days after a copy of such written notice is received by the Department.

(5) Each insurance policy must be issued by an insurer which, at a minimum, is licensed to transact the business of insurance, or be eligible to provide insurance as an excess or surplus lines insurer, in one or more states and comply with Title 10 C.R.S. 1987, as amended.

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8) 	Add Section 8.83 {Statement of Basis and Purpose for the Rulemaking Hearing of May 20, 2014 to Part 8 of the Regulations to read as follows:

Statement of Basis and Purpose
Rulemaking Hearing of May 20, 2014

8.83 Basis and Purpose.

These amendments to 6 CCR 1007-3, Part 266 are made pursuant to the authority granted to the Solid and Hazardous Waste Commission in §§ 25-15-302(2), C.R.S.

Amendment of 6 CCR 1007-3, Part 266 Financial Requirements

The purpose of Part 266 of these regulations is to 1) provide assurance that funds will be available to the Department when needed for adequate closure and/or post-closure care of hazardous waste management facilities should the owner and/or operator become financially non-viable and 2) provide liability coverage for the compensation of third parties for bodily injury or property damage caused by accidents or improper hazardous waste management techniques.  These regulations require the owners and/or operators to estimate the costs of closure and/or post-closure care of hazardous waste management facilities and assure financial responsibility for those costs through any of four mechanisms:  trust fund, letter of credit, surety bond, and insurance. 

These regulations also assure that funds will be available to third parties injured by accidents or improper hazardous waste management techniques at a facility, or who have experienced property damage at or caused by the facility.  

A number of changes have been made in Part 266 that are more restrictive than the Federal regulations.

These changes to Part 266 are a result of, and respond to, concerns of the Department after many years of program implementation and vulnerabilities in the existing regulations that have been exposed by a) research done by EPA’s Environmental Financial Advisory Board (“EFAB”) and b) effects of the recent economic recession.  The proposed regulatory changes were developed utilizing a series of three stakeholder meetings at which comments were received from interested parties, discussed, and incorporated as appropriate.  The Department believes that all stakeholder concerns have been resolved. 

Discussion of the Regulatory Proposal

Most of the changes proposed in this rulemaking to Part 266 fall into the two main categories discussed below:

1.	Elimination of the Financial Test and Corporate Guarantee
2.	Strengthening the requirements for Insurance and Captive Insurance Companies

The remainder of the changes are small clarifications.

1.	Elimination of the Financial Test and Corporate Guarantee

At the present time, no owners or operators of hazardous waste facilities in Colorado are using the Financial Test or the Corporate Guarantee.

The Financial Test and Corporate Guarantee mechanisms rely on the continuing ability of the regulated entity to pay closure and/or post-closure costs.  That is to say, the owner/operator (“o/o”) of a hazardous waste facility may demonstrate its ability to pay for the cost of closure and/or post-closure care by presenting information about its own financial health.  When the o/o meets certain requirements, it is not required to arrange with a third-party to guarantee payment of closure and/or post-closure costs, nor is it required to set aside funds. Under this mechanism, when closure and/or post-closure costs need to be paid, the o/o continues to be solely responsible for paying them.

These amendments to § 266.14(i) and § 266.16(f) and (g) remove the Financial Test and Corporate Guarantee from the allowable mechanisms in the regulations because this mechanism presents an overall risk that is unacceptable considering the following:

•	Most companies with closure and/or post-closure liabilities are not hazardous waste management companies, but are involved in some other manufacturing or processing endeavor.  As such, Department staff does not necessarily have current information about the financial health of that industry, let alone that particular company.  
•	The responsibilities of Department staff involve protection of public health and the environment.  Normally, this does not include financial regulation and oversight.
•	As demonstrated by the ASARCO facilities, which used the Financial Test at one time, the financial viability of companies can change very rapidly. The ASARCO facility in Denver has one old surface impoundment in post-closure that was covered by the Financial Test.  When ASARCO unexpectedly declared bankruptcy, the Financial Test would no longer assure their post-closure costs. As a result of the bankruptcy, ASARCO was unable obtain a different financial assurance mechanism, and the only way cleanup was obtained was through a purchase and absorption of all ASARCO assets and liabilities by Grupo Mexico. However, financial assurance has never been established for the ASARCO facility since the bankruptcy.    
•	The EFAB, in their January 11, 2006 report, observes that “very little information [is available] concerning the utilization of the Financial Test by small entities, and particularly those without a bond rating.  If the small company is private, it is not subject to the same financial disclosure requirements imposed on public companies.”   While some of the companies required to have financial assurance in Colorado are large publicly-traded corporations, this is not true of them all.  For instance, International Risk Group, LLC (“IRG”) is a privately held company that specializes in the remediation of environmentally impaired land and property.  IRG’s affiliate, Lowry Assumptions, LLC, has an agreement with the Department and the US Air Force for the remediation of the Former Lowry Air Force Base, and as such must provide financial assurance.  Lowry Assumptions, LLC, currently makes use of other approved financial assurance mechanisms. Had IRG wanted to use the Financial Test or Corporate Guarantee, the Department may not have been able to verify IRGs ability to fund its closure and post-closure responsibilities. 

It should be noted that the EFAB, making recommendations at the national level, did not have sufficient concerns as to recommend to EPA that the Financial Test and Corporate Guarantee be removed as a financial assurance mechanism.  Part of the EFAB’s reasoning included a cost burden to industry in transferring to another mechanism.  This is not the case in Colorado, as we currently have no facilities using the Financial Test or Corporate Guarantee.  The EFAB did, however, recommend tightening the requirements for the Financial Test and Corporate Guarantee.  

2.	Strengthening the Requirements for Insurance and Captive Insurance Companies

A.	Requirements for Insurers. 

These amendments to § 266.14(h) and § 266.16(h) strengthen the requirements for Insurance Companies to include qualifications for the Insurer.  The Insurer must, at a minimum: 1) be licensed to transact the business of insurance in the State of Colorado, 2) attain a rating of A- or better from A.M. Best, 3) be eligible to provide insurance as an excess or surplus lines insurer of more than $100 million in one or more States, and 4) submit a copy of the proposed insurance policy to the Department for review before it is in full force and effect. 

The Department has chosen to utilize an A.M. Best rating to assure that the Insurer has the financial strength to secure their liabilities. A.M. Best is a third party rating agency that evaluates all insurers and is the top rated third-party agency to provide their type of analysis and research. A rating of A- means that the Insurer has a very good financial prognosis and is not at risk of becoming financially insolvent. An Insurer will also have to demonstrate that they have at least $100 million or greater in capital and surplus beyond the liability of their outstanding policies. This will ensure that the liability covered by the policy will be guaranteed even if other outstanding policies are paid in full.  The Department is also requiring an owner and/or operator to submit the insurance policy to the Department before it is approved for financial assurance. This will ensure that the policy coverage adequately meets the required needs of the closure, post-closure and/or corrective action at the facility before the policy is bound.

B.	Requirements for Captive Insurance Companies. 

These amendments to § 266.14(h) also strengthen the requirements for captive insurance providers. A captive insurance company is a closely-held company owned by one or more organizations or parents whose original purpose was, and may continue to be, to insure some or all of the risks of shareholders or affiliated organizations. It is used in areas other than environmental protection where parent firms find it to their advantage to set up a captive insurance company to cover well-understood risks at a lower cost than purchasing insurance policies available from commercial carriers. As a result, the financial health of the captive insurance company is closely tied with the parent company, so if the parent company encounters financial difficulties there is no guarantee that the captive insurance company would retain the necessary resources to fund any closure and/or post-closure liabilities they may have. 

The Department has had concerns about captive insurance for some time.  These concerns include the following:  
1.	A lack of independence, and thus the transfer of risk, between the captive subsidiary and the insured parent company.
2.	A lack of consistent requirements for captives with regard to minimum capitalization thresholds, reserves, and encumbrances on reserves.
3.	Captive insurance being domiciled in states/nations where the regulatory oversight is antiquated or favors the industry rather than protecting the general public.
4.	Similar to the concern about the Financial Test and Corporate Guarantee, a general lack of Department expertise in monitoring and reviewing the financial state of captive insurance providers and their parent companies.
5.	Also similar to the concern about the Financial Test and Corporate Guarantee, the financial viability of companies (and their captive insurance providers) can change very rapidly.  

These concerns have been adequately addressed by adding the same requirements that were added for all insurers, as explained above.  In addition, requirements have been added that the captive insurer be domiciled in the State of Vermont and that the captive insurer gives the Department at least 180 days notice before defunding a captive insurance policy.  The Department is proposing that all captive insurance companies be domiciled in Vermont because Vermont regulates more captive insurance entities than any other state and has developed regulations that keep pace with, and effectively control, the captive insurance industry. The Department has also required that if the captive insurance company fails to pass the annual examination conducted by the Department of Financial Regulation of Vermont, the o/o shall submit notification to the Department, at which point a different approved mechanism would need to be secured.  The 180-day notice allows the Department to work with the company to put another approved financial assurance mechanism in place before the captive insurance policy lapses.

The EFAB also evaluated captive insurance in March 2007.   In that evaluation, the EFAB recognized that an A.M. Best Rating and the Department of Financial Regulation of Vermont’s standards and expertise as the best available.