A recurring problem in Ministry of the Environment instruments is the ministry’s demand for financial assurance that duplicates other financial instruments. A classic example is a condominium, which is required to have a capital fund to cover future expenses, such as most obligations under a Risk Management Plan. The Ministry may require a condominium to duplicate this same capital allowance by way of FA.
A similar example occurred in Detox Environmental Ltd. v. Director, Ministry of the Environment, where Detox appealed the Ministry demand for $100,000 in financial assurance for transportation accidents involving PCBs.As Detox pointed out, it holds $5 million of vehicle insurance, to cover precisely the same sort of accidents. Detox also noted that the MOE’s standard amount, $100,000, was almost certainly inadequate. The Environmental Review Tribunal said that Detox made some good points, and sent the matter back to the MOE for reconsideration.
Here are some more details:
Appeal filed January 9, 2009 for a hearing before the ERT pursuant to section 139 of the Environment Protection Act, re Amended Provisional CofA (Waste Management System), # A840849 issued by the Director of the MOE, on Dec. 16, 2008.
Detox appealed the approval of the application because the Amended Provisional CofA issued by Director of the MOE requires Detox to maintain $100,000 in cash, bond or irrevocable letter of credit for its PCB waste management system.
Detox did not appeal the FA requirement for its waste disposal site: $382.218. Rather, Detox asked that its $5 million vehicle insurance policy should count as its financial assurance.
MOE Financial Assurance Program Support Coordinator Mary Ouroumis testified that insurance is a non-standard method, unless a compelling case is made by appellant (s. 6.6.2, FA Guideline).* Insurance policies should only be considered for facilities, et al with plans for less than four years in scope, but are not appropriate for landfills and long-term disposal facilities where costs are certain to be incurred.(S. 7.4.9 – FA Guidelines)
She also stated that vehicular insurance was not preferable because the MOE would have to review the insurance policy and procedures.
However, Ouroumis admitted that there are systemic problems in the MOE’s requirements, especially a gap between the $100,000 financial assurance requirement for PCB and biomedical waste haulage and the amount actually needed to clean up spills this is an area where. Of the 15 cases where the MOE had to use financial assurance, the $100,000 was never sufficient.
Decision:
The Tribunal allows Detox’s appeal in part, by amending the first sentence of Condition 25(a) of the CofA as follows:
“The Company shall maintain financial assurances in a form that is acceptable under the MOE’s Guideline F-15, or a successor document, in the amount of $100,000 in a form satisfactory to the MOE Director for PCB waste and PCB related waste management system.”
- Tribunal also stated Detox can put forward a non-standard form of financial assurance if the appropriate legal and financial reviews show that the insurance is sufficient in amount and accessibility to clean up spills. It also urged Detox to bring more detail to the process than it did at the hearing; insurance could be considered acceptable in appropriate circumstances. The Tribunal also hoped a proper review of the MOE’s financial assurance programs will prevent further such appeals in the future.
{ 2 comments… read them below or add one }
There are 2 or 3 flat rate FA amounts required in Ontario Regulations that need review and revision.
Moreover, most of the cases where FA is actually used are from transfer stations and processing facilities where FA is calculated correctly according to the F-15 Guideline. In nearly all of these case FA has been insufficient because a) fires were involved so that more cleanup activities, at higher costs, were required than anticipated in the Guidelines (including extinguishing the fire) b) the sites were operated illegally such as depositing more waste than allowed in the C of A or accepting wastes that were prohibited for the site. Many of these sites that had to be cleaned up by the Ministry were abandoned by the owners.
These deficiencies may be addressed by completing risk assessments and applying factors that would increase FA required for sites or operators that have higher risks of fires or abandonment, hence higher cleanup and mitigation costs.
Insurance policies for vehicles seldom have the provisions needed to cover the costs that would be incurred for facility decommissioning and cleanup. Also, MOEnv staff reviews of individual insurance policies have proven costly and time consuming for staff and clients.
Perhaps the insurance industry could design products that could be accepted as FA with confidence by the Ministry.
Surety Bonds are a great way to mitigate the MOE's concerns. Surety Bonds also minimize the amount of capital required to be outlayed in advance. For more information, please visit my website or contact me.