Claim Settlement Procedures Involving State Fuel Oil Discharge Cleanup Funds

The State of New Hampshire Insurance Department 21 South Fruit Strl'cl. Suite l ➔ Concord. NII 03301 Rogl'r A. Sevigny Commissionl·r Alrxanclcr K. Fcldvcbl'I D<•put'y Com missioner BUl,LETIN Docket Number INS NO. 11-009-J\R TO: All Propc11y Casualty Insurers, including Surplus Lines Insurers FROM, Roge,· A. Se,;gny, lnscornnce Comm;,,;onerp ~ DATE: July 1.2011 RE: Claim Settlement Procedures Involving State Fuel Oil Discharge Cleanup Funds The purpose of this Bulletin is to clarify the insurance claim determination process where an insured property owner who is strictly liable to the State of New Hampshire for damage to state waters from a ii.1el oil discharge seeks to establish eligibility for excess i11surance coverage from the Fuel Oil Discharge Cleanup Fund established by RSA Chapter l46-E 1 (''FOO Fund'" or'·Fund''). The Insurance Department (''Department"") recognizes that coverage determinations associated with oil discharges arc complex in that the state acts both as an excess insurer through the FOO f-"und and as the holder. in public trust. or a property interest in state sw-face water and groundwater. This Bulletin addresses the obligations of insurers when an insured property owner presents a claim related to an oil discharge to state waters. In order to secure FOO fund coverage, the Oil Pund Disbursement Board c--oDD Board'") requires that a property owner first obtain a determination as to whether there is coverage under any private insurance policy. RSA 146-E:6, III: N.H. Adm in. Rules. Odb 405.03(b). ln the past, some property owners' applications for FOD Fund coverage have been delayed due to uncertainty as to whether the oil discharge has impacted the property interest of a third party, and confusion about the appropriate timing for issuing a determination regarding coverage for liability fOT damages caused by the discharge. 1 This process also app.lies to coverage sought under the Oil Discharge and Disposal Cleanup Fund. RSA 146-D and the Motor Oil Discharge Cleanup Fund, RSA 146-F. A II three funds are jointly administered by the Oil Fund Disbursement f3oard, which is administratively attached to the Department orEnvironment:il Services. RS/\ 146-D:9. - 2 - To faci I itate the settlement of claims rcsu I ting from oi I discharges. the Department of Environmental Services ("DES") has instituted a new procedure whereby it will issue a Notice of Strict Liability under RSA I 46-A:3-a ("SL Notice .. ) to an oil storage facility owner or property owner seeking Fund coverage. A copy of' the SL Notice form is attached to this 13ulletin. DES will direct owners to submit SL Notices to their insurance companies. See SL Notice, page 2. The SL Notice is a factual determination by DES that there has been a discharge of oil to surface water or groundwater at a particular location that causes damage to the property interest of the state. The legal significance of the SL Notice to any notice of claim ~ filed by the insured is discussed in Section I below. When making eligibility determinations of liability coverage for oil discharges impacting state surface or groundwater, insurers must comply with the claim settlement procedures ofN.H. Adm in. Rules. Ins Part 1002 ('"ln:s 1002··). The speciric application of Ins I 002 to claims relating to oil discharges is discussed in Section Tl below. 1. State·s Rig:ht to Recover Damages to Surface Water and Oroundwater The State of New Hampshire holds a property interest in the statc·s surface water and groundwater. The New Hampshire Supreme Court has ruled that "f t]he General Court has declared thatthe State is the trustee over all of the State's water,'' including groundwater. State v. I less Corp .. 161 N .H. 426, 432 (2011 ), citing RSA 48 I: 1. The state ·s rig,hts as trustee of surface water and groundwater extend to asserting a claim for damages when there is a release of contaminants to those waters. Hess Corp., 161 N.ll. at 434: sec also Coakley v. Maine Bonding & Cas. Co .. 136 N.H. 402. 4 12-413 (1992) (groundwater is a "unique and irreplaceable government resource .. in which the state has a property interest sufficient to assert an insurance claim). Damages include cleanup costs and reimbursement for related investigatory costs. Coakley, 136 N.H. at 416; see also EnergyNorth v. Century lndemnjty Co., 452 f. 3d 44, 57 (1 st Cir. 2006) ("[C]Jeanup measures that serve preventative ends while remediating the taint of prior environmental contamination have been held to be covered by general liability policies."). The state·s claims under RSA chapter 146-A for damages to public waters arc unique in being governed by the strict liability standard; damage claims or other third patties under the same chapter must meet the traditiona I tort standard of negJigent or intentional causation. RSA I 46-A:3-a; RSA 146-A: IO; Mesiti v. Microdot. Inc .. TJ9 F. Supp. 57. 63 (D.N.H. 1990) (reiterating that there is no private cause or action in strict liability under RSA 146-A:3-a). The state·s property interest as trustee is distinct from any ownership interest tbe insured may hold in his property, including the rigbt to drill a well and use the grotmclwatcr. Appeal of Town of Nottingham, 153 N.H. 539, 548 (2006) (citing Bassel! v. Salisbury Mfr~. Co., 43 N.H. 569, 577 (1862)). Because tbe state and the property owner each have a separate property interest. damage to groundwater is not solely damage to property of the insured, but is also damage to the state· s interest. Therefore. the issuance of an SL Notice establishes a claim for damage to the property of a third party that must be addressed by the insurer in accordance with insurance law. ., - .) - II. Application ofins Part 1002 Claim Settlement Procedures to Oil Discharges It is in the best interest of all parties to address oil discharges quickly and efficiently. Therefore, the following procedures shall apply2 when an insured has applied for assistance from the fund, and seeks a determination of coverage from an insurer: A. Scope of Coverage If an oil discharge has reached groundwater or surface water, as evidenced by the issuance of an SL Notice by DES, there is a claim against the property owner for physical damage to Lhe property of a third paiiy, i.e., the State of New Hampshire. The iJ1surer must address any notice of claim filed by an insured in a written determination to the insured, advising whether there is coverage under the policy for the damage caused by the discharge. The insurer must provide notice to the i11Sured and act in issuing this detennination in accordance with the procedure outlined in lns 1002. Insurers arc encouraged to issue written determinations consistent with the DES guidelines on page two of the SL Notice.3 B. Claim Settlement Time Limitations After Receipt or SL Notice The insurer shall commence investigation of the statc·s claim within five working clays or receipt of an SL Notice and any other claim material from the insured. and shall acknowledge receipt orthe notice within lcn days. Ins I 002.0S(a)( l ): Ins 1002.0S(b). The insurer shall issue a detern1ination letter advising of acceptance or rejection of the state's claim wit11in 30 days of receiving the SL Notice. lns 1002.0S(c). Because the SL Notice is not a notice of claim that apprises the insurer of facts pertinent to the claim(s) of third parties other than the state, the insmance company has no obligation to issue a determiJ1ation with respect to other third-pat1y claims based on receipt of the SL Notice. C. Justified Delays in C laim Settlement Implicit in the claim settlement procedure of Ins 1002 is tht.: importance or a timely determination by the insurer. Because any delay in corrective action of an oil discharge may result in additional contamination, inclucli11g potential bodily harm. the Department will strictly construe and enforce the claim settlement time limitations in Jns l 002. Insurers are encouraged to expedite the processing of oil discharge claims, and are reminded that pursuant to RSA 417 :4, XV (a)() 1 ), failing to affirm or deny coverage within the limitations set forth in Ins 1002 is an unfair insurance trade practice. Please contact Jennifer J. Patterson at the New Hampshire [nsurance Department, Jennifer.pattcrson(a)ins.nh.11.ov or (603) 271-2261 , with any questions about this Bulletin. Attachment: Copy of DES SL Notice form 1 While surplus lines insurers arc not srrictly bound by Ins 1002, the Department expects that they wi ll act promptly and in general accordance with rhe spirit of these guidelines in processing oil discharge claims. 1 Insurers should also be mindful of RS/\ 146-AA, which as described by DES on the SL Notice gives rhe agency ·'prima1y jurisdiction'· over oil spill cleanups and requires responsible parties 10 coordinate their cleanup efforts witl1 those of DES. ,.A:-blL STORAGE FACILITY/PROPERTY: ON-SITE ·sPILL ··oR UNKN0WN-SOURCEIJ ' -- - __ ,, nmv,f&J 6 el'V1cN Type (check one): Motor Fuel AST ("LAST") □ Motor Fuel UST ("LUST") □ Fuel Oil AST ("FUEL") □ On-Premise-Use Fuel Oil ("OPUF") D Motor Oil ("MOST") D On-Site Spill D Unknown Source D 8. FACILITY AND/OR PROPERTY: OR LOCATION INFORMATION i;.;°t~t;il:f1,. ~ , /;:.:; , 1 (1) Facility and/or property, or location name (2) Address (3) Town (4) NHDES facility registration/permit number, if applicable (5) NHDES site number and project number (TBD) (6) Date of discovery (1) Owner/Responsible Party name (2) Mailing address (3) Day/Evening phone (1), _____________ __ _ (2), _____ ______ ___ _ (3) ______________ _ (4), ______________ _ i (5) _________ _ _ ___ _ (6} _ ___________ __ _ (1). _ _____________ _ (2) ___________ ___ _ (3), ______________ _ 0.- NOTICE OF STRICT'LIABILITY & STATEMENT OF INSURANCE REQUIREMENTS . -~ The New Hampshire Department of Environmental Services (NHDES) has determined that as of the date listed in 8(6), the person(s) or entity listed in C(1) is strictly liable under New Hampshire RSA 146-A:3-a for cleanup of the oil discharge discovered at the location listed in 8(1 ), which has impacted the waters of the State. NHDES has or will issue specific instructions for performing cleanup, and requires that insurance coverage information be provided. A state fund, which is designed to be excess coverage to any private insurance, may be available for cleanup cost reimbursement if private insurance is unavailable or insufficient. Pursuant to Insurance Department Bulletin INS No. 11-009-AB, upon receipt of this Notice, the private insurer must make a coverage determination as to whether or not the State's claim in strict liability for damages lo waters of the State is covered by the policy. Coverage determination notification to the insured must comply with the guidelines outlined in New Hampshire Code of Administrative Rules, Part Ins 1002. NHDES Representative & Date Signed SEE INFORMATION AND GENERAL INSTRUCTIONS ON PAGE 2 Notice of Strict Liability & In s urance Coverage Det e rm ination Form Version 7 / 1 /2011 - Page 1 • New Hampshire's Oil Pollution Control statute (RSA 146-A) gives NHDES primary jurisdiction over oil spill cleanup operations. Responsible parties must perform the cleanup to the Department's satisfaction and be consistent with the Department's directives. RSA 146-A:4, I; see also RSA 146-A:7. The law also authorizes NHDES to perform cleanup, but the liable parties will be billed for those services, which must be paid in order to obtain a release from the State that cleanup work is complete. • Under New Hampshire law (RSA 146-A:3-a), any person who causes or suffers a discharge of oil into or onto any surface water or groundwater, or in a land area where oil will ultimately impact water, is strictly liable for cleanup. Petroleum storage tank facility owners, and owners of land where such facilitres are or were located, need to understand that they are legally liable even if they were not negligent in the operation of a facility. • NHDES expects private insurance companies to pay cleanup costs that are covered under the insurance policy. Once NHDES has issued a Notice of Strict Liability, the party determined to be strictly liable is responsible for seeking a coverage determination from each private insurance company that has issued a policy on the property or oil storage facility. Coverage determinations from insurance agents interpreting policies are not acceptable. The coverage determination must be from the insurance company or an authorized adjuster, based on a claim filed by the insured. If there is no private insurance, the owner or company officer must supply NHDES with a notarized letter stating this fact. • The New Hampshire Petroleum Reimbursement Fund Program oil spill cleanup funds, available under RSA 146-D, RSA 146- E and RSA 146-F, provide excess insurance coverage. Private insurance for cleanup costs and/or third-party damages must be exhausted before the State funds are available. The initial request for reimbursement authorization under the State funds must include documents to demonstrate there is no private insurance coverage. • When water contamination becomes known during a cleanup initially financed by State funds. but ii is later determined that there is coverage under a private insurance policy, NHDES expects the insurance company to assume the cost of any waler quality assessment that is necessary. Costs excluded from coverage under private insurance may be covered by the State excess insurance funds, provided all eligibility requirements are met. • The N.H. Department ot Insurance (DOI) has issued Bulletin INS No. 11-009-AB to insurance companies regarding the process for handling insurance claims relating to oil discharges, where NHDES has issued a Notice of Strict Liability. The Bulletin directs insurers to issue coverage decisions (i.e., denial or payment of a claim) in accordance with DOI rules, Ins 1002 (htto:llwww.gencourt.state.nh.usiruteslstate agencies/ins1 ODO.html). The Bulletin advises insurers they must give the insured written notice of the reason for denial in whole or in part of any claim; under Ins 1002.06(a), this includes notice of the applicable policy provision upon which denial is based. The Bulletin also encourages insurers to make their oil discharge coverage decisions consistent with the approach outliined in this notice. • If a private insurer (1) is non-responsive to a request for a coverage determination, (2) states that the policy does not cover the State's strict liability claim, or (3) will not certify that such coverage is not available under its policy, State fund coverage may still be provided. However, the State reserves its right to take legal action against the insurer to recover costs. • NHDES personnel will complete the Noti.ce of Strict Liability form as soon as possible after an oil discharge is reported and initially investigated, and water impacts are found. The owner/responsible party should provide a copy of both sides of the completed form to their insurance company to request a coverage determination. The owner/responsible party should report the results of the coverage determination to NHDES immediately. The findings of the coverage determination must be included with the owner's request for State excess insurance fund coverage. If you have questions, email Thnothy.Denison@des.nh.gov or call (603) 271-2570. Notice of Strict Liability & Insurance Coverage Determination Form Version 7/1/2011 - Page 2