Residential Heating Oil USTs (PART 2): Financing UHOT Remediation in New Jersey
This is the second of a multi-part blog series focused on residential heating oil tanks. Here we introduce some New Jersey’s UST statistics, unregulated heating oil tank (UHOT) regulations, and funding sources for clean-up of heating oil tank. Stay tuned for Part 3, which will provide a deeper dive into UHOT regulations and third-party assessment.
Regulated and unregulated underground storage tanks (USTs) are prevalent in New Jersey, and many have the potential to impact the environment. There are an estimated 12,000 regulated USTs located at approximately 4,000 sites throughout the state, 2,350 of which are gas stations holding hazardous substances. All of these are regulated under the federal regulation CFR 40 Part 280. Regulated UST owners or operators are required to demonstrate the UST has leak detection, spill and overfill prevention, and financial assurance in the event contamination as a result of a leak is identified.
NJ Residential Heating Oil Tank Statistics
The number of regulated USTs, although significant, pales in comparison to the number of unregulated heating oil tanks in New Jersey, most of which are located underground with no leak detection, spill or overfill prevention, or financial assurance to clean up a release to the environment. According to the U.S. Energy Information Administration, in total there are about 3.23 million households in New Jersey, about 7% of which have heating oil tanks. The majority the of these tanks are steel and 20 years of age or older with generally no or poor corrosion protection. The critical age for a typical unprotected steel UST is between 10 to 20 years, when breakthrough from external corrosion is most likely to occur, causing leakage. According to the EPA, the average reported age for subsurface tank releases was 17 years, and for subsurface piping releases was 11 years.
The point of the matter is older steel tanks have a better chance than not to have leaked into the environment, especially if the corrosion protection is not present or failing. Typically, during the sale of a property, the buyer and lender are interested in finding out if the UST leaked and contaminated the property. If contamination is identified this often deters the buyer from purchasing the property and can lead to a costly clean-up effort.
In all states, if a discharge from a UST to the environment occurs, the homeowner is required to report the release to the governing county or state regulatory authority. In New Jersey, the release must be reported through the New Jersey Department of Environmental Protection (NJDEP) Action Line 1-877-WARN-DEP. Unlike regulated USTs that require financial assurance, home heating oil tanks are unregulated and do not require the homeowner to demonstrate financial assurance in the event of a release. Insurance is one of the leading risk transfer means that can provide financial assurance. As discussed in Part 1 of this blog series, the clean-ups cost an average of around $90,000, and can cost upwards of $300,000 if groundwater impacts are identified below the home foundation.
Pollution liability caused by leaking oil tanks has become a major problem in New Jersey. The typical homeowner’s insurance policy does not usually provide coverage for leaking heating oil USTs or ASTs, and many times they are specifically excluded from policies unless the homeowner specifically seeks this type of coverage. However, contamination of groundwater (a resource owned by the State) from a discharge of a heating oil tank can be considered third-party property damage under the policy, and cleanup of groundwater impacts may be covered under the homeowner’s insurance third-party liability coverage. Most homeowners’ policies exclude pollution liability caused by oil tanks with some providing a coverage option for an additional premium. The coverage often is only offered once to new applicants or current policyholders. Once declined, insureds usually cannot buy the coverage on any future policies.
Insurance coverage may depend on the following conditions, depending on the policy:
- Impact to groundwater or contamination to an offsite non-owned property (either soil or groundwater)
- Timing of the release (depending on the occurrence language)
- State laws classifying contamination liability (i.e., Massachusetts only defines third party liability as offsite contamination to a non-owned property, and would not include groundwater impact on the homeowner’s property)
- Some exceptions will apply; the occurrence language varies for different policy years as well as different types of homeowner policies
In addition, some insurers offer specialty insurance policies to homeowners. In all cases, the insured should discuss the types of available coverages with their broker and underwriter to determine if such coverage is offered and, if so, is it appropriate. They should also review the policy language as it can potentially change after the date purchased. A list of insurance companies that provide homeowner insurance in New Jersey is available here.
In addition to insurance coverage, New Jersey offers the Petroleum Underground Storage Tank Remediation, Upgrade, and Closure Fund (known as the UST Fund). The UST Fund provides financial assistance in the form of loans and grants to eligible owners and operators for the closure and remediation of discharges from residential and other unregulated petroleum USTs, as well as for the closure and remediation of state-regulated petroleum USTs.
For grants, homeowners must have a taxable income not exceeding $250,000, and a net worth not exceeding $500,000, excluding their primary residence and pension. Recipients are eligible to receive up to a $500,000 in conditional hardship grants and $2,000,000 in loans for sites not located in Planning Area 1 (Metropolitan) or Planning Area 2 (Suburban) as designated pursuant to the State Planning Act or in the Highlands Region. Sites located with these designated areas may receive a grant of up to $1,000,000 or a loan or up to $3,000,000.
The UST Fund is accepting new applications for unregulated petroleum USTs, including home heating oil tanks; however, these applications are delayed due to backlog and insufficient funds. According to the NJDEP, the applications will be date stamped and held in queue. Applications will be reviewed and processed in the order of receipt. The estimated waiting period for financial assistance is currently 3.5 years from the date of receipt of the application by the NJDEP. For more information or to request a grant application, contact [email protected] or call 609.984.2076.
Since oil tanks may ultimately leak, all homeowners with oil tanks are encouraged to have their tanks tested and inspected and to replace old oil tanks. This will help protect New Jersey’s environmental resources and prevent a homeowner’s pollution liability loss. If you have a UST it is also a best practice to move to an aboveground tank system. Prior to tank removal, discuss with your insurance broker, environmental attorney, and environmental consultant what your responsibility is if a release to the environment were to occur and what options avail themselves to you. If available, seek UST insurance or a rider to you homeowner’s insurance that could provide sufficient coverage if a pollution condition associated with the UST is identified. Lastly, understand if you qualify for grant money from New Jersey’s UST Fund prior to removing a UST so that you can take advantage of available grant and/or loan options.
Stay tuned for Part 3 of this blog series, where we’ll discuss New Jersey UHOT regulations and third-party assessment.
Scott Green, PG
Mr. Green is the Market Area Director for First Environment’s environmental insurance consulting services group, which provides support to underwriting and claims professionals as well as litigation services to law firms. He has strong working relationships with insurers and law firms and has established Master Service Agreements with the insurers’ vendor management offices. His group is involved in a variety of environmental underwriting and claims assignments throughout the U.S. Notably, Mr. Green has completed more than 1,200 consulting and loss control assignments for insurance companies since 2001. Mr. Green previously managed an in-house consulting group at AIG in Jersey City, New Jersey, where he worked for 13 years providing in-house technical consultation and remediation oversight services to the Environmental and Pollution Insurance Products Claims Departments for claims throughout the U.S., including supporting underwriting. He has developed detailed annual and life-cycle cost estimates, value cost assessments, and pollution event cost allocations, in addition to providing technical support regarding potential claim coverage. Mr. Green also prepared pollution source and timing as well as cause and origin reports to resolve pollution claims. He has evaluated hundreds of claims pertaining to whether incurred pollution costs were reasonable, customary, and consistent with industry standards and whether work performed was required by environmental law and covered specific to pollution policy.
A professional geologist, Scott also provides expert testimony support as well as project management for hydrogeologic and hazardous waste projects, most recently working on PFAS contamination sites. During his 30 years of consulting, he has gained valuable experience conducting Phase I and II Environmental Site Assessments, UST investigation and remediation, Brownfields and manufactured gas plant (MGP) site investigations, remedial investigations, feasibility studies, groundwater/solute transport modeling, wellhead protection, and risk assessments. Mr. Green also provides training to environmental professionals and drillers using Geoprobe’s soil and groundwater sampling and remediation injection technologies.