Section 310. Allowable financial mechanisms

A. Each owner and operator shall demonstrate financial responsibility by establishing and maintaining a financial mechanism, or combination of mechanisms, in the amounts specified in 9VAC20-170-300. The mechanisms used to demonstrate financial responsibility shall ensure that the funds necessary to meet the costs of cleanup and containment and the restoration of beneficial uses of state waters will be available whenever they are needed. The owner and operator shall provide continuous coverage until released by the director.

B. Each owner and operator shall submit the original financial mechanism or combination of mechanisms together with the application for a certificate as specified in 9VAC20-170-290 B.

C. Owners and operators shall demonstrate financial responsibility using one or more of the following financial mechanisms:

1. Trust fund.

a. The owner or operator of a vessel may satisfy the requirements of subsection A of this section by establishing a trust fund that conforms to the requirements of this section and by submitting an originally signed trust agreement to the department. The trustee for the trust fund shall be a bank or financial institution that has the authority to act as a trustee and whose trust operations are regulated and examined by a federal agency or the State Corporation Commission.

b. The trust fund shall be irrevocable and shall continue until terminated at the written direction of the director and the trustee. Upon termination of the trust, all remaining trust property, less final trust administration expenses, shall be delivered to the owner or operator. The wording of the trust agreement must be identical to the wording specified in APPENDIX I, except that instructions in brackets must be replaced with the relevant information and the brackets deleted, and must be accompanied by a formal certification of acknowledgment as specified in APPENDIX I.

c. The owner or operator initially shall submit the original, signed trust agreement to the department as a part of the application for a certificate as specified in 9VAC20-170-290 B.

d. The irrevocable trust fund, when established, must be funded for the full financial responsibility amount as specified in 9VAC20-170-300, or funded for part of the required amount and used in combination with other mechanisms that provide the remaining required amount.

e. If the value of the trust fund is greater than the required financial responsibility amount as specified in 9VAC20-170-300, the owner or operator may submit a written request to the department for release of the excess.

f. If another financial mechanism as specified in this part is substituted for all or part of the trust fund, the owner or operator may submit a written request to the department for release of the excess.

g. Within 60 days after receiving a request from the owner or operator for release of funds as specified in subdivision 1 e or 1 f of this subsection, the director will instruct the trustee to release to the owner or operator such funds as the director deems appropriate, if any, in writing.

h. Whenever the required financial responsibility amount as specified in 9VAC20-170-300 changes after the establishment of the trust fund, the owner or operator shall compare the new amount with the trustee's most recent annual valuation of the trust fund. If the value of the fund is less than the required amount, the owner or operator shall, within 60 days of the change in the required amount specified in 9VAC20-170-300, deposit a sufficient amount into the fund so that its value after payment at least equals the new financial responsibility amount, or obtain another financial mechanism or combination of mechanisms as specified in this part to cover the difference. If the value of the trust fund is greater than the new financial responsibility amount, the owner or operator may submit a written request to the department for release of the amount that is in excess of the new amount.

i. After beginning a cleanup or containment operation in accordance with the approved Response and Mitigation Plan, an owner or operator or any other person authorized to conduct cleanup or containment, may request reimbursement for cleanup or containment expenditures by submitting itemized bills to the department. Within 60 days after receiving bills for cleanup or containment activities, the director shall instruct the trustee to make reimbursements in those amounts as the director determines are justified.

j. If the director approves reimbursements from the fund, the owner or operator providing the mechanism shall by the anniversary date of the trust:

(1) Replenish the value of the trust to equal the full amount of coverage required pursuant to 9VAC20-170-300; or

(2) Acquire another financial responsibility mechanism for the amount by which the funds in the trust have been reduced.

2. Standby trust fund.

a. An owner or operator using any one of the mechanisms authorized by subdivisions 3 and 4 of this subsection or 9VAC20-170-330 C 3 and 4 must establish a standby trust fund when the mechanism is acquired and submit the original standby trust agreement to the department. The trustee of the standby trust fund must be an entity that has the authority to act as a trustee and whose trust operations are regulated and examined by a federal agency or the State Corporation Commission.

b. The standby trust agreement or trust agreement must be worded identically as specified in APPENDIX I or APPENDIX VI, except that instructions in brackets are to be replaced with the relevant information and the brackets deleted, and accompanied by a formal certification of acknowledgment as specified in APPENDIX I and APPENDIX VI.

c. An owner or operator may establish one trust fund as the depository mechanism for all funds assured in compliance with this section.

3. Surety bond guaranteeing payment.

a. An owner or operator may satisfy the requirements of subsection A of this section by obtaining a surety bond that conforms to the requirements of this section and submitting the original bond to the department. The surety company issuing the bond shall be licensed to operate as a surety in the Commonwealth of Virginia and be among those listed as acceptable sureties on federal bonds in the latest Circular 570 of the U.S. Department of the Treasury.

b. The surety bond must be worded identically as specified in APPENDIX II, except that instructions in brackets must be replaced with the relevant information and the brackets deleted.

c. The owner or operator initially shall submit the original bond to the department as a part of the application for a certificate as specified in 9VAC20-170-290 B.

d. The surety bond shall name the vessel operator or owner as the principal and name the Commonwealth of Virginia as the obligee.

e. Under the terms of the bond, the surety will become liable on the bond obligation when the owner or operator fails to perform as guaranteed by the bond. The surety's liability is limited to the penal sum of the bond.

f. The owner or operator who uses a surety bond to satisfy the requirements of subsection A of this section must establish a standby trust fund when the surety bond is acquired. Under the terms of the bond, all amounts paid by the surety under the bond will be deposited directly into the standby trust fund in accordance with instructions from the director under 9VAC20-170-360. This standby trust fund shall meet the requirements specified in subdivision 2 of this subsection.

g. Whenever the financial responsibility amount specified in 9VAC20-170-300 increases to an amount greater than the penal sum of the bond, the owner or operator shall, within 60 days of the increase, cause the penal sum of the bond to be increased to an amount at least equal to the amount specified in 9VAC20-170-300 or obtain another financial mechanism or combination of mechanisms as specified in this part to cover the increase. Whenever the financial responsibility amount specified in 9VAC20-170-300 decreases, the penal sum of the bond may be reduced to the new amount following written approval by the director. The surety shall send the notice of an increase or decrease in the amount of the bond to the department by certified mail within 60 days of the change.

4. Letter of credit.

a. An owner or operator may satisfy the requirements of subsection A of this section by obtaining an irrevocable standby letter of credit that satisfies the requirements of this section and by submitting the original letter of credit to the department. The issuing institution shall be a bank or other financial institution that has the authority to issue letters of credit and whose letter of credit operations are regulated and examined by the Commonwealth of Virginia, by a federal agency, or by an agency of another state.

b. The owner or operator initially shall submit the original letter of credit to the department as a part of the application for a certificate as specified in 9VAC20-170-290 B.

c. The letter of credit shall be irrevocable and issued for a period of at least one year in an amount at least equal to the amount specified in 9VAC20-170-300. The letter of credit shall provide that the expiration date will be automatically extended for a period of at least one year. If the letter of credit is canceled by the issuing institution, the owner or operator shall obtain alternate evidence of financial responsibility in accordance with this part.

d. The letter of credit must be worded identically as specified in APPENDIX III, except that instructions in brackets are to be replaced with the relevant information and the brackets deleted.

e. An owner or operator who uses a letter of credit to satisfy the requirements of subsection A of this section must also establish a standby trust fund when the letter of credit is acquired. Under the terms of the letter of credit, all amounts paid pursuant to a draft by the board will be deposited by the issuing institution directly into the standby trust fund in accordance with instructions from the board under 9VAC20-170-360. This standby trust fund must meet the requirements specified in subdivision 2 of this subsection.

f. Whenever the financial responsibility amount specified in 9VAC20-170-300 increases to an amount greater than the amount of credit, the owner or operator shall, within 60 days of the increase, cause the amount of credit to be increased to an amount at least equal to the amount specified in 9VAC20-170-300 or obtain another financial mechanism or combination of mechanisms as specified in this part to cover the increase. Whenever the financial responsibility amount specified in 9VAC20-170-300 decreases, the letter of credit may be reduced to the new amount following written approval by the director. The issuing institution shall send the notice of an increase or decrease in the amount of the credit to the department by certified mail within 60 days of the change.

Historical Notes

Derived from Volume 19, Issue 19, eff. July 2, 2003.

Statutory Authority

§§ 10.1-1402 and 10.1-1454.1 of the Code of Virginia.