Financial assurance for cleanup operations

This is the most common type of financial assurance. It’s also required for any facility that needs a closure plan. This type of assurance covers the costs of:

• Closing a facility.
• Removing any waste that is left behind.
• Cleaning and disinfecting the surfaces and equipment (by a third party).

How much closure cleanup funds do you need?

Financial assurance assumes the facility has gone out of business and is not around to do the cleanup work. There must be enough financial assurance to cover a facility’s closure cost estimate.

A closure cost estimate must:

• Be approved by us.
• Be an estimate for a third party to conduct cleanup activities (not for the facility itself to do this).
• Include all activities and costs associated with closing and taking care of everything left behind.
• Include sales tax and a contingency factor of 10-20% as recommended by RSMeans.

Third-party liability financial assurance is a set amount of coverage required for active facilities. Facilities going through post-closure monitoring are NOT required to have third-party liability coverage.

If there is an accident on-site, this type of financial assurance covers compensation for:

• Visitors who are injured while on-site.
• Visitors whose property is damaged while on-site.
• Neighbors that incur property damage or bodily harm due to issues at the facility (e.g., if there is a fire at the facility or an underground storage tank leaks and contaminates the soil or water). 

Post-closure financial assurance is required for facilities that need a post-closure plan or permit. This is an uncommon type of financial assurance. If a facility closes but leaves no waste or contamination behind, this type of financial assurance is NOT needed.

Facilities that need post-closure care must have enough funds to cover all estimated costs outlined in the post-closure plan or permit, even if the facility has not closed yet.

This type of financial assurance covers the costs of:

• Maintaining a closed facility.
• Any required monitoring (e.g., if a facility closed and left waste behind in a landfill).

If your facility is required to have corrective action or hazardous waste cleanup financial assurance, you must have enough funds to cover all work required by the legal order, including things like:

• Site security.
• Testing.
• Construction costs.
• Any other costs the corrective action order might require.

Financial assurance for cleanup sites under the Model Toxics Control Act (MTCA) must cover long-term activities such as:

• Operations and maintenance on the remedy.
• An engineered system like a soil vapor extraction system.
• Monitoring.

A trust fund works just like a trust fund for a child. Money is deposited into an account and a trustee invests and manages the money. If your trust fund loses money or otherwise falls below the threshold of the amount of required financial assurance (your cost estimates), you will need to add money to the trust fund to keep it up to date.

How to set up a trust fund for financial assurance

1. Contact Joanna Seymour for the required trust fund template.
2. Mail an original of the trust agreement to our address once the trust fund is set up.

Using a letter of credit is a popular option for financial assurance. It promises that a facility’s bank will pay the amount of the letter of credit if and when we determine this amount is owed.

How to set up a letter of credit for financial assurance

To set up a letter of credit you will also establish a standby trust agreement:

1. Contact Joanna Seymour for the required templates.
2. Mail the originals to our address.

Insurance is a popular option, especially for third-party liability financial assurance. For third-party liability, the facility pays a premium and the insurance company agrees to pay a claim if one occurs during the policy period.

NOTE: Most insurance companies DO NOT write policies that cover closure, post-closure, corrective action, or MTCA sites. Facilities may opt to use a bond or letter of credit in this instance.

What are fully funded policies?

Some insurance companies may sell what’s called a "fully funded" policy. With fully funded policies, a facility pays into a cleanup fund over a number of years, plus a yearly premium to the insurance company. When it’s time to close the facility, the facility owner will have to pay for closure (i.e., the owner pays for closure twice), but once the closure is finished, the insurance company will pay the owner’s money back from the claim, provided they met the terms of their contract.

How to set up insurance

1. Contact Joanna Seymour for the required templates. Let us know if you plan to use insurance to cover third-party liability, which requires the template for a Hazardous Waste Facility Liability Endorsement.
2. Mail or email a copy of the full policy to Joanna Seymour.

NOTE: This type of financial assurance does NOT need a standby trust agreement.

The financial test is a form of self-insurance. It is limited to the biggest and most financially stable companies. The financial test requires that the company providing the financial assurance meets very strict financial performance standards. If that company is so healthy that there’s no chance they’ll go bankrupt in the next year, they can use this test to meet the legal requirements for financial assurance.

How to set up a financial test

1. Contact Joanna Seymour for the required templates.
2. Email or mail copies of these documents AND a copy of your facility’s audited financial statements for the previous year to Joanna Seymour.

Note: The copy of the report from the auditor costs extra, but the templates from us are free.

The corporate guarantee is similar to the financial test, but this is used when a facility is part of a larger corporate conglomerate. In this case, the parent company provides documentation showing they meet the financial test requirements.

How to set up a corporate guarantee

1. Contact Joanna Seymour for the required templates.
2. Email or mail copies of these documents to Joanna Seymour.

NOTE: Companies using the corporate guarantee for third-party liability coverage also need a document from their home state's Attorney General.

A payment bond (also known as a “surety bond for payment”) is a contract between a facility and the bonding company where a facility pays the bonding company a premium. The bonding company signs a document that promises the facility will do the closure, post-closure, corrective action cleanup or MTCA operation and maintenance, as required. If a facility fails to do so, the bonding company promises to pay the amount of a facility’s cost estimate.

Money goes into a standby trust fund and then it works just like a normal trust fund. Payment bonds are not as common as they used to be, but some companies still offer them.

How to set up a payment bond for financial assurance

To set up a payment bond, you will also establish a standby trust agreement:

1. Contact Joanna Seymour for the required templates.
2. Mail the original bond AND original standby trust agreement to our address.

A performance bond (also known as a “surety bond for performance”) is similar to a payment bond except that, in this case, if a facility fails to do the closure, post-closure, or corrective action cleanup as required, the bonding company can choose to either pay the amount of the bond into a facility’s standby trust fund or hire a contractor to do the work. Performance bonds are uncommon.

How to set up a performance bond for financial assurance

1. Contact Joanna Seymour for the required template.
2. Mail the original bond to our address.