ALJDEC decisions subject to certification as final

10A-F025-DEQ · Department of Environmental Quality · 2010-07-26

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: June 2 and 7, 2010 APPEARANCES: Attorney Chris Welker for Appellant Western States Petroleum, Inc.; Assistant Attorney General Mark Horlings for the Department of Environmental Quality ADMINISTRATIVE LAW JUDGE: Thomas Shedden _____________________________________________________________________ FINDINGS OF FACT 1. On April 20, 2010, the Arizona Department of Environmental Quality (“ADEQ”) issued a Notice of Hearing setting the above- captioned matter for hearing at 11:00 a.m. June 2, 2010, at the Office of Administrative Hearings in Phoenix, Arizona. 2. The Notice of Hearing provided that the hearing was to consider issues related to ADEQ’s denial letter dated March 24, 2010, which informed Appellant Western States Petroleum, Inc. (Western States) that it did not qualify for an additional $500,000 in coverage from the State Assurance Fund (“SAF”). 3. Western States is the Owner of a gas station located at 7201 East Cave Creek Road, Carefree, Arizona (the “site”). Robert F. Kec is Western States’ president. 4. On December 21, 1994, ADEQ received notice of a confirmed release at the site (the “release”). 5. In December 1994, Western States was the Owner of the site and Aranki Shell was the Operator of the site. See A.R.S. § 49- 1001.01 (defining owner) and § 49-1001(11) (defining operator).

6. Mr. Merai Aranki was the president of Aranki Shell. Members of the Aranki family had three insurance policies issued by Homestead Insurance Company providing coverage for pollution resulting from releases at the site: a. Policy BPL 000097 that was effective from June 1, 1992 through June 1, 1993; b. Policy BPL 000223 that was effective from June 1, 1993 through June 1, 1994; and c. Policy BPL 000556 that was effective from June 1, 1994 through June 1, 1995. 7. Western States was either a named insured or an additional insured under Policies BPL 000097 and BPL 000223. 8. The parties dispute whether or not Western States was also a named or additional insured under Policy BPL 000556. 9. Western States submitted claims to ADEQ for reimbursement from the SAF for corrective-action costs related to the release. In a letter dated April 11, 2003, in response to ADEQ’s request for more information about the applicable insurance, Western States informed ADEQ that it had submitted a claim against “its applicable environmental insurance coverage” (i.e., Policy BPL 000556). See Exhibit ADEQ 10. 10. With the letter dated April 11, 2003, Mr. Kec signed a certification showing that Western States had filed a claim against Policy BPL 000556. See Exhibit ADEQ 10. 11. ADEQ approved Western States’ requests for reimbursement from the SAF, based in part on Western States’ certification. Western States has received over $400,000 from the fund. 12. Western States did not actually submit a claim against Policy BPL 000556. 13. Mr. Kec testified that Western States did not submit a claim against that policy because Western States was not insured under the policy and because there was no need to do so because the SAF would cover the cost of corrective action. 14. Mr. Kec did not provide any testimony explaining why he had previously certified that Western States was covered by Policy BPL 000556. Western States did present the testimony of Mr. John Kennedy, an environmental consultant who helped prepare Exhibit 10. According to Mr. Kennedy, in hindsight, Western States should not have indicated that it had submitted a claim against Policy BPL 000556. 15. Mr. Aranki had submitted a claim against all three Homestead policies in December 2002. See Exhibit ADEQ 2A (letter from Homestead to Mr. Aranki dated March 21, 2003). 16. Homestead denied Mr. Aranki’s claim because the claim was not submitted within the time limits specified in the policies. See Exhibit ADEQ 2A. 17. Any claim under Policy BPL 000556 was required to be filed no later than January 27, 1996, but Homestead found that Policy BPL 000223 had an extended reporting period, under which claims could have been submitted until June 1, 1997. See Exhibit ADEQ 2A. 18. When analyzing Mr. Aranki’s claim, Homestead presumed that Western States was covered by all three policies, but Homestead acknowledged that it could not locate any endorsements showing that Western States was actually insured under the policies. See Exhibit ADEQ 2A. 19. On July 23, 2009, Western States submitted an application (the “Application”) to ADEQ requesting increased SAF coverage from $500,000 to $1 million. See Exhibit ADEQ 2. 20. With the Application, Western States provided a certified statement that the three Homestead Insurance policies provided the financial assurance mechanism required at the time of the release. 21. ADEQ denied Western States’ request for increased coverage because Western States did not demonstrate that the required financial assurance mechanism (the Homestead policies) was utilized to the maximum extent possible. See Exhibit ADEQ 3. 22. Mr. Aranki was in compliance with the financial responsibility standards effective June 1992 through June 1995. See Exhibit ADEQ 3. 23. During its evaluation of the Application, ADEQ reviewed the Homestead letter to Mr. Aranki dated March 21, 2003. 24. The letter shows that Homestead was considering only whether the policies provided coverage for costs related to a lawsuit filed by the City of Carefree, and Homestead did not address any corrective action costs. The SAF covers only corrective action costs. 25. The statutes related to the SAF have been revised several times since the release. At the time of the release: (1) the owner and the operator were not both required to carry liability insurance, only one was required to do so; (2) an owner was not required to have insurance coverage to be eligible for funding from the SAF; and (3) the maximum payment from the SAF was $200,000. 26. Under the current statutes: (1) an owner must have insurance or another appropriate financial assurance mechanism to be eligible for coverage from the SAF; (2) the coverage has been increased from $200,000 to $500,000; and (3) there is now an additional $500,000 in coverage available to owners or operators who meet specified conditions. 27. ADEQ interprets the statutes to require an owner to use the initial $500,000 dollars of SAF funds and then the required insurance coverage before the owner is eligible to receive the second $500,000 from the SAF. 28. ADEQ was unaware that Western States was asserting that it had no insurance until after Western States filed its appeal. Consequently, ADEQ could not, and did not, consider Western States’ argument prior to issuing the denial letter. 29. Based on its assertion that it was not covered under Policy BPL 000556, Western States argues that it is entitled to the additional coverage as a matter of law. According to Western States, because it had no insurance at the time of the release, it has used the applicable insurance to the maximum extent possible. 30. ADEQ argues that Western States received SAF money based on its previous assertions that it was covered by Policy BPL 000556 and that consequently, Western States is estopped from denying that it had insurance coverage in order to now qualify for the additional $500,000 from the SAF. 31. ADEQ disputes Western States’ contention that it did not have insurance at the time of the release. In addition to Mr. Kec’s certification that Western States was covered under Policy BPL 000556, ADEQ introduced into evidence a copy of the policy that has handwritten notes showing that a binder that would cover Western States was going to be issued. See Exhibit ADEQ 7. CONCLUSIONS OF LAW 1. Western States bears the burden of proof; the standard of proof on all issues in this matter is by a preponderance of the evidence. See A.A.C. R2-19-119. 2. A preponderance of the evidence is “[e]vidence which is of greater weight or more convincing than the evidence which is offered in opposition to it; that is, evidence which as a whole shows that the fact sought to be proved is more probable than not.” Black’s Law Dictionary 1182 (6th ed. 1990). 3. The primary goal when construing statutes is to ascertain the legislature’s intent. Statutory provisions must be considered in the context of the entire statute and consideration must be given to all of the statute's provisions to determine the legislative intent manifested by the entire act. See Guzman v. Guzman, 175 Ariz. 183, 854 P.2d 1169 (App. 1993). 4. ADEQ’s interpretation of the applicable statutes should be given considerable weight unless there is clear statutory guidance contrary to ADEQ’s interpretation. See Arizona Water Co. v. Arizona Department of Water Resources, 208 Ariz. 147, 91 P.3d 990 (2004). 5. To be eligible for the additional $500,000 from the SAF, among other requirements, an owner or operator must show that it has utilized to the maximum extent possible any insurance or alternative financial assurance mechanisms required for coverage pursuant to A.R.S. § 49-1052, subsection F, paragraph 5, which in turn, requires compliance with 40 C.F.R. 280, Subpart H. See A.R.S. § 49-1054 and § 49-1052. 6. Western States argues that it is entitled to the additional coverage as a matter of law under A.R.S. § 49-1054(A) because: (1) according to Western States, it has no applicable insurance, so it has utilized the available insurance to the maximum extent possible, and it meets all the other requirements; (2) it does not matter that ADEQ relied on Mr. Kec’s certification showing that Western States did have insurance, because the issue for hearing is whether or not Western States qualifies for the additional funding, and not whether ADEQ’s denial was correct based on the information Western States provided with the Application; and (3) Western States was not required to have insurance in 1994 to be eligible for SAF funds, so to require insurance for the additional $500,000 is applying the statutes retroactively, which is inappropriate. 7. ADEQ interprets the statutes to show that the legislature was placing limits on who could qualify for the additional $500,000 from the SAF and that the legislature intended to limit those funds to owners or operators who had insurance.

WESTERN STATES MISCONSTRUES THE STATUTE 8. The additional $500,000 from the SAF is available only to “owners or operators” who meet the statutory requirements. The Arizona Revised Statutes define “Owner” and they define “Operator,” but not “Owner or Operator.” 9. The Code of Federal Regulations, however, define “Owner or Operator” as the person who has obtained the required insurance, which in this case is the Operator. See 40 C.F.R. 280.92. Compliance with this portion of the Code of Federal Regulations is required for coverage from the SAF. This shows that the legislative intent was to allow the additional coverage only for persons who had insurance coverage. Consequently, Western States is not eligible for the additional coverage.

THE SCOPE OF THE HEARING 10. ADEQ’s denial was based on Mr. Kec’s certification that Western States was covered under Policy BPL 000556 and because the information Western States presented to ADEQ with the Application shows that Western States did not utilize that insurance to the fullest extent possible. 11. The scope of the hearing is limited to matters in the Notice of Hearing. See A.R.S. § 41-1092.07(F)(6). 12. In its Notice of Appeal, Western States did not provide any information to show that it was taking the position that it had no insurance, and Western States did not raise that argument until after the Notice of Hearing was issued. Consequently, the scope of the hearing is limited to whether or not ADEQ’s decision to deny the Application was appropriate.

THE RECORD DOES NOT SHOW THAT WESTERN STATES HAD NO INSURANCE 13. The record does not demonstrate that Western States was without insurance at the time of the release. 14. Although Mr. Kec testified that Western States was not covered by Policy BPL 000556, his testimony cannot be considered credible and reliable because Mr. Kec previously certified that Western States was covered by Policy BPL 000556. Moreover, in light of Mr. Kec’s certification, Mr. Kennedy’s testimony is insufficient to demonstrate that Western States was not covered by Policy BPL 000556. 15. Homestead, in Exhibit ADEQ 2A, provided that it could not find any endorsements to show that Western States was covered under Policy BPL 000556. However, it is not disputed that Western States was covered under Policies BPL 000097 and BPL 000223, and Homestead had no endorsements for those policies either. Consequently, Exhibit ADEQ 2A does not demonstrate that there was no coverage under Policy BPL 000556. 16. The evidence also shows that at the time of the release Western States could have filed a claim against Policy BPL 000223, but it did not do so. Consequently, the evidence of record does not show that Western States used the applicable insurance to the maximum extent possible.

THE STATUTES ARE NOT BEING IMPROPERLY APPLIED RETROACTIVELY 17. Western States argues that ADEQ is improperly applying the statutes retroactively because at the time of the release Western States was not required to have insurance to qualify for funding from the SAF. 18. In 1994, the funding from the SAF was limited to $200,000. Since that time the statutes have been amended to increase the coverage to $500,000 and to add the possibility of receiving an additional $500,000. 19. Western States had no right to the additional $500,000 in 1994, because the statute did not include such a provision. Western States has received, or will receive, the full $500,000 of initial coverage from the SAF (i.e., it has received from the SAF more than the $200,000 in funding that was available in 1994). 20. Consequently, there is no basis on which to conclude that the statutes are being applied retroactively.

CONCLUSION 21. Western States has not met its burden to show that ADEQ improperly denied its Application requesting an additional $500,000 in coverage from the SAF. 22. Western States has not demonstrated that it meets the statutory requirements to be eligible for an additional $500,000 in coverage from the SAF. 23. Consequently, Western States Petroleum Inc.’s appeal should be dismissed. ORDER IT IS ORDERED that Western States Petroleum Inc.’s appeal is dismissed. Done this day, July 26, 2010.

/s/ Thomas Shedden Thomas Shedden Administrative Law Judge

Transmitted electronically to:

Benjamin Grumbles, Director Department of Environmental Quality -----------------------

Office of Administrative Hearings 1400 West Washington, Suite 101 Phoenix, Arizona 85007 (602) 542-9826