405 KAR 30:060. Form, terms and conditions of performance bonds and liability insurance

Link to law: http://www.lrc.ky.gov/kar/405/030/060.htm
Published: 2015

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      405 KAR 30:060.

Form, terms and conditions of performance bonds and liability insurance.





KRS 151.125, 224.033, 350.028, 350.050, 350.600


AND CONFORMITY: KRS 350.033 requires the Environmental and Public Protection

Cabinet to develop administrative regulations for oil shale operations to

minimize and prevent their adverse effects on the citizens and the environment

of the Commonwealth. This administrative regulation sets forth minimum bonding

and insurance standards. The administrative regulation specifies the types,

terms, and conditions of liability insurance.


      Section 1. Types of

Performance Bond. (1) The form for the performance bond shall be prescribed by

the cabinet.

      (2) The performance

bond shall be either:

      (a) A surety bond;

      (b) A collateral

bond; which includes cash, negotiable certificates of deposit, or an

irrevocable letter of credit of any bank organized and authorized to transact

business in the United States; or

      (c) A combination of

these bonding methods as approved by the cabinet.


      Section 2. Terms and

Conditions of Performance Bond. (1) The performance bond shall be in an amount

determined by the cabinet.

      (2) The performance

bond shall be payable to the cabinet and not subject to cancellation by anyone

until released by the cabinet.

      (3) The performance

bond shall be conditioned upon the faithful performance of all of the

requirements of the applicable statutes and administrative regulations and the

conditions of the reclamation plan and permit.

      (4) The surety, by

certified mail, will give prompt notice to the permittee and the cabinet of any

notice received or action filed alleging any violations of state or federal

regulatory requirements which could result in suspension or revocation of the

surety's license to do business.

      (a) In the event

that the surety becomes unable to fulfill its obligations under the bond for

any reason, written notice shall be given promptly to the permittee and the

cabinet by certified mail.

      (b) Upon the

incapacity of a surety for any reason whatsoever, including but not limited to

bankruptcy, insolvency, or suspension or revocation of its license, the

permittee shall be deemed to be without bond coverage. The cabinet shall issue

a notice of noncompliance against any permittee who is without bond coverage.

The notice shall specify a reasonable period to replace bond coverage, not to

exceed ninety (90) days. During this period, the cabinet shall conduct weekly

inspections to ensure continuing compliance with other requirements of 405 KAR

and the permit.

      (5) Collateral

bonds, except for letters of credit, shall be subject to the following


      (a) The cabinet

shall obtain possession of all collateral bonds which shall be kept in an appropriate

account. Possession will be maintained until authorized for release or


      (b) The cabinet

shall require that certificates of deposit be assigned to the cabinet and the

issuing bank in writing.

      (c) The cabinet

shall not accept an individual certificate of deposit for a denomination in

excess of the maximum insurable amount as determined by the Federal Deposit

Insurance Corporation and the Federal Savings and Loan Insurance Corporation.

      (d) The cabinet

shall require the issuer of the certificates of deposit to waive all rights of

setoff or liens which it might have had against the certificates.

      (e) The cabinet

shall accept only those certificates of deposit that are automatically


      (f) The cash value

of any instrument pledged as collateral shall be at least equal to the bond


      (6) Letters of

credit shall be subject to the following conditions:

      (a) The letter of

credit shall be irrevocable. Only a bank authorized to do business in the United States may issue a letter of credit.

      (b) The letter of

credit, by its express terms, must be payable in full to the cabinet upon

receipt from the cabinet of a Notice of Forfeiture.

      (c) The letter of

credit shall provide that in the event the issuer becomes unable to fulfill its

obligations under the letter of credit for any reason, notice, by certified

mail, shall be given immediately to the permittee and the cabinet.


      Section 3.

Substitution of Bonds. (1) Substitution of bonds shall be in the discretion of

the cabinet.

      (2) In effecting a

requested substitution of bonds, the cabinet shall not release the existing

prior performance bond until the permittee has submitted and the cabinet has

approved acceptable substitute performance bonds.


      Section 4. Terms and

Conditions for Liability Insurance. (1) The cabinet shall require the applicant

to submit at the time of permit application, proof that the applicant has a

public liability insurance policy in full force and effect for the oil shale

operation for which the permit is sought. The public liability insurance policy

shall provide for personal injury and property damage protection in an amount

adequate to compensate all persons injured or property damaged as a result of

oil shale operations, including such injury or damage by use of explosives and

injury or damage to water wells. Minimum insurance coverage for bodily injury

shall be $300,000 for each occurrence and $500,000 aggregate; and minimum

insurance coverage for property damage shall be $300,000 for each occurrence

and $500,000 aggregate.

      (2) The public

liability insurance policy shall be maintained in full force during the term of

the permit or any renewal thereof, and until completion of all reclamation

operations under these oil shale administrative regulations.

      (3) The policy shall

include a clause requiring that the insurer notify the cabinet whenever any

change whatsoever is made in the policy, including any termination of a policy

or failure to renew the policy. (8 Ky.R. 94; Am. 468; eff. 3-1-82; TAm eff.