405 KAR 30:060.
Form, terms and conditions of performance bonds and liability insurance.
RELATES TO: KRS
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
(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.
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.
Substitution of Bonds. (1) Substitution of bonds shall be in the discretion of
(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.