How PMMIC Became the Industry Leader in UST and AST Insurance
Written by: Patrick Rounds, President and CEO
The birth of EPA. In 1969 Cleveland’s Cuyahoga River caught fire for the 13th time in 100 years. The river had become polluted from steel mills, paint factories, oil refineries and other manufacturers who were discharging their waste directly into the river. Less than 6 months later, President Richard Nixon signed the National Environmental Policy Act into law on January 1, 1970 which led to the creation of the Environmental Protection Agency (EPA) to oversee environmental protection programs at the federal level.
Environmental liability and the “pollution exclusion”. When the EPA began demanding businesses stop discharging pollutants and cleanup contaminants from past discharges, the businesses turned to their comprehensive general liability policies (CGL) for coverage. Insurance carriers had not anticipated liabilities associated with the new environmental laws and denied coverage in all 50 states. Eventually the courts ruled that if environmental liabilities were not specifically excluded from the coverage, the insurers had to pay. The price tag was in the billions and led to the creation of the “pollution exclusion” in 1971 that became the standard in every CGL policy by 1973. After extensive litigation over such terms as “sudden” and “accidental”, that policy was revised to create an “Absolute Pollution Exclusion” that became standard in 1985.
UST regulations. In December 1983 “60 Minutes” presented a segment titled “Check the Water” https://youtu.be/leYoLtsQ2WQ (replay from Aug 1984) which brought national attention to a UST leak that impacted the water supply to Canob Park, Rhode Island. In response, President Ronald Reagan signed into law the 1984 Hazardous and Solid Waste Amendments, which created Subtitle I to the Solid Waste Disposal Act. Like NEPA, this was one of the fastest moving acts of legislation in US history - Subtitle I regulated petroleum USTs throughout the US. It was estimated there were approximately 2.1 million USTs in the US at that time, with no viable insurance market to address environmental harms.
In 1988 the USEPA issued rules implementing the new federal UST laws. The rules created technical operation standards and required that all UST systems maintain environmental liability coverage. In response, in 1989, Iowa created a program to address environmental liabilities associated with petroleum underground storage tanks. The “remedial program” provided funding to address existing environmental issues at UST facilities which was funded by a one cent per gallon environmental protection charge on all petroleum sales. To obtain assistance from the remedial program, tank owners had to document a release from their UST system by October 26, 1990, and were required to obtain adequate pollution liability insurance to address corrective action and third-party liability from any future leaks.
UST insurance. CGL policies excluded environmental damages. New pollution liability policies were created to address environmental claims but in the late 1980s and early 1990s the market was very limited, especially for small businesses. There was very little data on the source and cause of leaks, and corrective action activities varied by jurisdiction with cleanup costs ranging from a few thousand to millions of dollars. With so many unknown variables, insurance became very expensive; businesses could self-insure for environmental liabilities, but smaller businesses did not have that option.
Iowa’s UST program created an insurance program separate from the remedial fund. Owners could obtain coverage by paying a fee into the fund and had to comply with operational requirements designed to reduce future leaks. “Premiums” per tank were established in the law but were required to become “actuarily sound” [the same way private insurance rates are set] by 1995. All of the money in the “insurance fund” came from premiums paid by tank owners. The remedial program paid for losses discovered and reported by October 26, 1990, thereafter tank owners had to prove they had coverage for future losses and for the most part had to rely on private insurance, state fund insurance or self-insurance. Approximately 3/4s of Iowa’s tank owners relied upon the state insurance program.
Petroleum Marketers Mutual Insurance Company. By 1998 the insurance fund covered 2,200 facilities and maintained over $40 million in the insurance account. The legislature created a new “Insurance Fund Board” to oversee the insurance program. Legislation directed that “No later than July 1, 2004, all moneys in the fund shall be transferred to the insurance board when restructured as an independent nonprofit entity organized to provide an allowable mechanism to demonstrate financial responsibility as required in 40 C.F.R. pts. 280 and 281, owned and operated by insureds,..”
On January 13, 2000, the insurance board organized an Iowa mutual insurance company known as Petroleum Marketers Mutual Insurance Company, or PMMIC. On November 8, 2000, PMMIC received a Certificate of Authority from the Iowa Commissioner of Insurance, as a property and casualty insurance company. That same date all of the assets and liabilities of the Insurance Fund were transferred to PMMIC. All participants in the insurance fund became the mutual owners. This was the first and only state fund that was fully privatized.
Petroleum Marketers Management Insurance Company. On September 28, 2005, PMMIC converted to a stock insurance company and became known as Petroleum Marketers Management Insurance Company. At the time of the demutualization, $23 million was distributed to the former mutual members, and 11 million shares of stock were distributed to approximately 1000 shareholders.
Today PMMIC is an AM BEST “A (excellent)” rated carrier doing business in 10 states and expanding. We are a company created and owned by tank owners for tank owners.