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The Surety Bond Market Is Growing In China

In the past six months the surety bond market has developed significantly for insurers in China, said Richard Chu, specialty lines, financial risks, Asia-Pacific, PartnerRe. “It’s a new product in China mainly for construction sector,” he said. “Previously most of the construction companies had to go to banks for surety products, but in the last six to eight months it is changing simply because the China Insurance Regulatory Commission (CIRC) and the People’s Republic of China Central Committee and State Council are further opening up this market and strengthening urban planning and construction management.” As a result of that, a number of insurance companies have started offering this product, and it is very much modelled towards the US surety market, said Chu. A knock on effect is that PartnerRe is now seeing a number of enquiries from insurance companies in China writing these surety bonds. “At present it is confined mainly to works in municipal government offices, schools and hospitals—it is still quite new in China,” said Chu. He added that China’s One Belt–One Road initiative will increase demands for medium long-term credit and also political risk insurance cover. “In fact, we have already seen a number of these projects, for example, China Railway Rolling Stock Co selling some 150 assembled railways cars and components to Egyptian National Railways—and that requires political risk coverage as well.” He expects to see more of these projects in the near future. In Korea, Chu said, the market has opened up due to recent changes by the regulator, the Financial Supervisory Service. It has opened up the export trade credit insurance market, which in the past was dominated by two companies: Seoul Guarantee Insurance and K-Sure (the export credit agencies of Korea). “Property and casualty insurance companies such as Samsung, Hyundai, KB and Dongbu, are now allowed to write this export trade credit insurance,” he said. “This is a new opportunity. They had ability to write the insurance for their own groups which are mainly in the electronic and manufacturing sectors.” Turning to Japan Chu anticipates that Japan will continue to invest in infrastructure because the country is facing ageing public infrastructure such as government offices, schools, bridges, roads and sewerage pipes which were built 40 to 50 years ago. “The Kumamoto earthquake revealed the necessity for such investment because the Kumamoto municipal government office collapsed during the earthquake and they were not able to function to undertake the necessary public service post-earthquake. “One university professor calculated the cost of maintenance and the construction of existing public infrastructure would be 8.9 trillion yen, ($86 billion) which is far from possible. So Japan has to prioritise projects for the time being,” said Chu. The upcoming 2020 Summer Olympics is sparking a lot of construction activity in Japan, he added; a recent project supported by PartnerRe was the construction of the Tokyo athletic stadium, with a $450 million surety bond request. Another key development in Japan is the opening up of the export credit agency: Nippon Export and Investment Insurance (NEXI). It has gone through a broker tender process and the state’s involvement will cease. “NEXI has been discussing its needs with PartnerRe and other reinsurers who can offer top security and expertise,” said Chu. South East Asia presents re/insurers with a number of countries at different stages of development. When it comes to trade credit insurance, Chu says cedants are still looking to grow and to open up this business in the market. “Trade credit insurance is not such a straightforward business, because cedants need to invest in underwriting infrastructure, IT platforms, good risk management techniques and accumulation control; so in these countries, cedants are looking for reinsurance companies that have good track record and can provide them with a partnership. “What Partner Re can do here is typically to provide technical knowledge transfer and risk management knowhow to further enhancing our cedants in South East Asia so that it supplements underwriting execution,” Chu explained. In Indonesia, for instance, PartnerRe recently assisted a client on trade credit insurance, providing technical assistance and expertise to guide them towards the writing and the setting up of their trade credit department. In China, PartnerRe is partnering with an insurance company that has several Chinese construction clients who are mainly in the Engineering News-Record 250 ranking. “Most of these Chinese companies tend to go to Latin America and Africa. As a global company and with credit and surety expertise in all regions of the world, PartnerRe has the ability to assist them and share with them the best practices for underwriting those lines in these other regions and in that way help our clients succeed.” PartnerRe, Asia-Pacific, Richard Chu, Insurance, Reinsurance, Risk management, Political risk, Property, Casualty, Latin America, EMEA, EAIC 2016 http://www.intelligentinsurer.com/news/the-surety-bond-market-is-growing-in-china-9924

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Arch Claim

New Contractor Chosen To Finish Hartford Ballpark; Work Expected To Resume Next Week

A new contractor has been chosen to finish Dunkin’ Donuts Park, and work is expected to resume next week, an Arch Insurance official said Wednesday. The new contractor will be Baltimore-based Whiting-Turner Contracting Co., which has extensive experience in building sports venues, said Patrick Nails, a senior vice president with Arch Insurance, the company guaranteeing completion of the ballpark. Whiting-Turner officials have already been on-site to review the work that still needs to be done, Nails said in an email to The Courant on Wednesday afternoon. Both Whiting crews and subcontractors who have previously worked on the stadium should be on the job beginning next week, he said. Nails said Whiting-Turner brings extensive experience with sports and recreational facilities “which it will use to complete construction of the ballpark so that we can bring baseball to Hartford next year.” The company’s construction portfolio features more than a dozen sports and fitness projects. They include the home of the NFL’s Baltimore Ravens; Rensselaer Polytechnic Institute’s East Campus Athletic Village, which includes an outdoor football stadium and an indoor basketball arena; and a basketball practice facility at Baylor University in Texas. In Connecticut, the company has worked on the Connecticut Science Center, Hartford’s Front Street and the Hartford Classical Magnet School, as well as on projects at Yale, Middlesex Hospital and Norwalk Community College. “These were complex negotiations, and Arch Insurance appreciates the cooperation of the city of Hartford, the mayor’s office, and Eastern League to bring them to conclusion,” Nails said. “A lot of work remains to be done to complete the park, but we look forward to working with all parties to bring baseball to Hartford in April 2017.” Hartford Mayor Luke Bronin said Wednesday that the city was pleased that Arch had selected a contractor with extensive construction experience, including the construction of sports facilities and stadiums. “We look forward to working closely with Whiting-Turner Contracting Co., with the Yard Goats, and with the Eastern League in the months ahead,” Bronin said. The team is scheduled to play its first game in Dunkin’ Donuts Park on April 13, 2017, after spending its inaugural Hartford season on the road because of construction delays and cost overruns at the $71 million minor league baseball stadium. Those delays resulted in the city terminating the developers, Centerplan Construction Co. and DoNo Hartford in June. It has been nearly four months since work ceased on the publicly financed project. In the meantime, the former developers sued the city, claiming wrongful termination, and sought an injunction preventing another company from completing the work. The dispute is in court-ordered mediation. The Eastern League has threatened to move the team out of Hartford if the 6,000-seat stadium is not ready for next season. Earlier this month, Bronin announced that the city and Arch had agreed in principle to have Arch oversee completion of the project. Nails did not say how much the work is expected to cost or how long the job will take to finish, but a report earlier this month from Jonathan O’Neil Cole, the ballpark’s architect, painted a picture of widespread workmanship problems. Raymond Garcia, an attorney for the former developers, declined to comment Wednesday. Attempts to reach Whiting-Turner officials after business hours Wednesday were unsuccessful. http://www.courant.com/news/connecticut/hc-dunkin-donuts-park-takeover-agreement-reached-0929-20160928-story.html

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Surety Industry Weighs In on New OCS Supplemental Bonding Requirements

Examining new BOEM supplemental bonding requirements for OCS decommissioning obligations: Part 4 In context of the Bureau of Ocean Energy Management’s new NTL 2016-N01, the recently in force Notice to Lessees and Operators in the outer continental shelf (OCS) laying out strict new financial demands of operators and leaseholders to cover decommissioning liability on the OCS, Oil & Gas 360® took a call from the Surety & Fidelity Association taking issue with the idea that the capacity of the surety industry to cover the Gulf of Mexico OCS liability is limited. “As a simple economic fact, there is not sufficient capacity in the entire bonding industry to issue the bonds needed to cover the current cumulative P&A and Decommissioning liabilities that BOEM has estimated at $40 billion,” was the quote in a previous Oil & Gas 360® story about the new requirements. Robert J. Duke is the general counsel for the Surety & Fidelity Association of America, a surety industry trade association that has been in force since 1908. Oil & Gas 360® spoke with Duke and others in the surety industry about the changing requirements for supplemental security for operators on the OCS. Duke said his organization’s membership is about 400 underwriting companies, which includes multiple companies under about 150-200 parent companies. Those are the companies that collectively write the majority of surety and fidelity bonds in the United States. Duke said he estimates that the number of sureties that work in the energy and mineral space is probably somewhere between a dozen and 20. Surety basics in the context of federal leaseholders and operators operating on the OCS “A surety provides a bond—it’s guaranteeing an obligation. In this case, the payment of and meeting of your decommissioning obligation,” Duke explained. “A surety will provide a bond only to those entities through its financial and operational review that it determines through its assessment can perform that obligation. They want to avoid the loss. The underwriting is more akin to a credit product than an insurance product. So just like you would provide a loan only to those you think could repay you, it’s the same with a bond. You’re going to provide a bond only to those you think can meet the decommissioning obligation. “That’s why I was alluding to credit quality. If an operator comes to a surety and says ‘we just got this letter from BOEM, and our supplemental requirement is $5 million’, a surety is going to review the operator’s financial wherewithal, it’s going to review the economics of the particular lease and well operation, and the surety will make a determination as to if it believes the operator can meet the $5 million obligation down the road? “If they believe they can, they will provide the bond, and if they believe they can’t [meet the obligation], they likely won’t provide the bond. If it’s a gray area they may require some collateral. Collateral certainly is an option [to the surety], I just don’t think it’s an across the board option.” Oil & Gas 360® also spoke to Adam S. Pessin, President and CEO of Tokio Marine HCC – Surety Group, one of the larger carriers in the class. Pessin’s group works with OCS oil and gas operators. “If you have appropriate and competent management, if you have appropriate capital structure, and if the asset quality is appropriate, the surety markets are very much open on an unsecured basis for these operators,” Pessin said. “It’s your parties that have problems in one or more of those three areas that wind up in a situation where security might be required by the surety providers.” Is there enough capacity within the surety universe to provide bonding for the estimated decom liability? Duke said in the industry overall there is plenty of capacity to cover the BOEM’s estimated $40 billion in decommissioning liability in the Gulf of Mexico. “There’s enough capacity in the surety market to absorb that,” he said, “but it comes down to the credit quality of the bond principal—that’s the operators themselves and the economics of the particular well. “So of that $40 billion that the industry has available to extend, the question is: are they willing to extend it? When you look at the available capacity, the more important issue is: will the operators qualify for it?” Dual obligee scenario could relieve some pressure “I think that BOEM has to some degree recognized this issue, because they are considering this idea of ‘dual obligee.’ Particularly in instances where a major operator—a Chevron or a Shell, for example—has conveyed an interest to an independent, and there is already an existing private bond. Not a bond to BOEM, but a bond from the independent to the major operator,” Duke said. “I know the independents have expressed concern that if they have to also provide a bond to BOEM, that would be double bonding. And BOEM seemed willing to say that ‘if somehow we can get onto the private bond, then that may be sufficient to meeting the additional security requirement’.” Duke said his association has been providing suggestions to BOEM as to what would be workable language in that scenario. “If we can get language that all parties like, then that will alleviate some of the need to provide supplemental security up to $40 billion.” http://www.oilandgas360.com/surety-industry-weighs-new-ocs-supplemental-bonding-requirements/

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itt-tech

Former ITT Tech Employee Lawsuits

ITT Technical Institute suddenly shut down all of its campuses and online courses on September 6, 2016. By doing so, it puts approximately 8,000 employees out of work without warning. Those employees are fighting back. Former ITT Tech employee lawsuits have been filed in Delaware and Indiana. At least one of those lawsuits has requested class action certification. ITT Tech operated 130 campuses in 38 states and also offered online courses. In April 2016 it received a show cause letter from the Accrediting Council for Independent Colleges and Schools, ACICS, to prove that ITT Tech was serving its students in compliance with ACICS standards. That notice prompted the U.S. Department of Education, DOE, to issue a letter to ITT Tech in June 2016 requiring it to increase its surety to 20 percent of Title IV Funding it had received in the fiscal year ending December 2015. Title IV funds are used for federal student loans. ACICS held a hearing and determined that ITT Tech was still not in compliance with hits standards and was not likely to become compliant. This prompted DOE to issue another letter on August 25 that, among other requirements, increased the required surety to 40 percent of the Title IV Funding resulting in a total of $247,292,364. DOE gave the institute 30 days to pay over $152 million that was needed to bring the surety on file up to that amount. Rather than meet the additional requirements, ITT Tech closed the doors of its campuses and online classes. The employee lawsuits allege that ITT Tech was in violation of the federal Worker Adjustment Retraining and Notification Act. That Act requires employers to give at least 60 days notice before mass layoffs. The employees are seeking all of the wages and benefits they would have received during the 60 days after they should have received notice of the closing. It is not clear whether ITT Tech campuses that have less than 50 employees on site fall under that Act. The closure has left thousands of students nationwide hanging. Some had invested years in their education, and owe thousands of dollars in student loans for degrees they will not receive. For those that were fortunate enough to have just finished their degrees, ITT stated that they will receive their diplomas, but graduation ceremonies have been cancelled. The DOE has stated that ITT Tech students that have federal student loans can file a claim to have those debts erased. But, if they do, they cannot transfer any credits they may have received from ITT Tech to other schools. It should be noted that there are very few schools or colleges that will accept ITT Tech credits. http://www.legalreader.com/former-itt-tech-employee-lawsuits/

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QBE Expands Its Surety Capabilities with $73.5 Million Treasury Listing

NEW YORK, Sept. 15, 2016 /PRNewswire/ — QBE North America today announced that the United States Department of Treasury approved QBE Insurance Corporation (QBEIC) as a Certified Company with an underwriting limitation (also referred to as a “Treasury Listing”) of $73.5 million per bond. This achievement builds upon a previously approved Treasury Listing for another QBE subsidiary, General Casualty Company of Wisconsin, at $24.6 million per bond. “This additional capacity, supported by our balance sheet financial strength and claims paying ability, greatly expands our ability to meet the demands of large private and public projects on a national basis,” said Jeffrey S. Grange, President, QBE Specialty. “The increased Treasury Listing affirms our long-term commitment to building a market leading Surety platform for our appointed producers and Surety customers.” Matt Curran, SVP, Head of QBE Surety added, “Obtaining QBEIC’s Treasury Listing allows us to better serve our clients and producers as we focus on the middle market contractor segment of the Surety industry. This new Treasury Listing will allow us to positively build upon the strong momentum we have already established since launching our Surety efforts a few years ago.” QBE’s portfolio of Surety bonds includes contract and commercial bonds that can be tailored to meet a client’s specific business needs. In the U.S., QBE focuses on serving the needs of general contractors, road and heavy equipment contractors, other prime contractors, and major sub-trade contractors. QBE also offers commercial bond support ranging from small license and permit bonds to large corporate commercial bonds. QBE’s Surety team in the U.S. is an important part of the company’s global Surety platform, which includes Surety underwriting teams around the world serving customers in Europe, Asia and Australia. QBE Specialty underwrites risks and provides exemplary coverage and services to support the specialized needs of customers across a wide variety of segments and industry sectors. These include Accident & Health, Aviation, Cyber, Inland Marine, Financial Institutions, Healthcare, Management Liability & Professional Lines, Transactional Liability, Media & Entertainment, Trade Credit, and Surety, for appointed retail and wholesale producers. About QBE QBE North America is part of QBE Insurance Group Limited, one of the largest insurers and reinsurers worldwide. QBE NA reported Gross Written Premiums in 2015 of $4.6 billion. QBE Insurance Group’s 2015 results can be found at www.qbena.com. Headquartered in Sydney, Australia, QBE operates out of 43 countries around the globe, with a presence in every key insurance market. The North America division, headquartered in New York, conducts business through its property and casualty insurance subsidiaries. QBE insurance companies are rated “A” (Excellent) by A.M. Best and “A+” by Standard & Poor’s. Additional information can be found at www.qbena.com, or follow QBE North America on Twitter. http://www.prnewswire.com/news-releases/qbe-expands-its-surety-capabilities-with-735-million-treasury-listing-300328937.html

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itt-tech

ITT Educational Services Plunges to Record Low, Chubb Demands $19.8 M Collateral and Plans to Cancel All Surety Bonds

September 2, 2016 Clifton Ray – ITT Educational Services (NYSE:ESI) is down 13%, reaching a record week low earlier off a trading halt, after the company said in a SEC fling Chubb (CB) was demanding ITT to post collateral of $19.8 million in the form of an acceptable irrevocable letter of credit. Chubb also said it plans to issue notices of cancellation on all of the Surety Bonds, starting with the largest first. Most of the Surety Bonds contain a 30-day cancellation provision. Chubb indicated the cancellation notices are rescindable should the company demonstrate it will be able to operate in a fiscally responsible fashion in the absence of federal student financial aid as noted in the U.S. Department of Education’s letter to the company on August 25, in addition to the additional security the company is required to post to the ED. If the Surety Bonds are rescinded and the company does not maintain an acceptable surety bond for those ITT Technical Institutes where a surety bond is required, the certificate or license for those ITT Technical Institutes can be suspended, invalidated or revoked by the applicable state education agency. The company says it is currently reviewing this demand and its potential impact on the business. The stock decreased 11.81% or $0.042 during the last trading session, hitting $0.31. About 4.96M shares traded hands or 195.24% up from the average. ITT Educational Services, Inc. (NYSE:ESI) has declined 85.89% since January 28, 2016 and is downtrending. It has underperformed by 100.55% the S&P500. ITT Educational Services, Inc. is a well-known provider of postsecondary degree programs in the United States. The company has a market cap of $7.19 million. The Firm offers master, bachelor and associate degree programs to over 45,000 students, and short-term information technology and business learning solutions for career advancers and other professionals. It has a 0.36 P/E ratio. It has approximately 138 campuses.

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Surety’s Indemnity Rights Eliminated by Subsequent Arbitration Agreement

Most readers are familiar with the concept that performance bond sureties expect to recoup, from their principals, every dollar of cost incurred in responding to demands on the bond. And most readers are aware that the typical general indemnity agreement (GIA) gives the surety extensive rights, against the persons and companies signing on as indemnitors, to recover every dollar spent. But one surety was stopped short when it sought to recover costs of an arbitration from its principal, after the surety signed a three-party arbitration agreement, post-project, providing that all parties would be responsible for their own costs. A dispute arose between subcontractor and prime contractor, and the prime contractor also made demands against the sub’s surety. The prime and sub commenced arbitration. Then, prime, sub and surety entered into what the decision refers to as an amended arbitration panel agreement, and the surety joined the arbitration. This later agreement included the following: “Each party shall be responsible for and bear the costs of its own attorney’s fees and expenses and an equal portion of the panel’s costs and expenses.” The arbitration ended with an award in favor of the sub and surety and against the prime. The surety turned around and demanded that the sub reimburse the surety for $748,843.85 in arbitration costs, citing the terms of the GIA calling for that result. But the sub argued in response that the amended arbitration panel agreement had superseded the GIA, and the surety was thus not entitled to recover any such costs from the sub. A US District Court judge agreed with the sub, at least denying the surety’s request for summary judgment based on the terms of the GIA. The court noted: “It is a well-settled tenet of contract law that a latter-signed contract between parties on the same subject modifies a pre-existing contract.” And it stated that if the surety had wanted to preserve its rights under the GIA, when entering into the amended arbitration panel agreement, the surety “should have executed contractual amendments or other documents clarifying the status of [the sub’s] duty to indemnify [the surety].” This is basic contract law. The surety will undoubtedly remember should this scenario arise again. The case is Western Surety Co. v. S3H, Inc., 2016 U.S. Dist. LEXIS 101769 (D. Nev., Aug. 3, 2016), available here (LEXIS subscription required). Commonsense Construction Law LLC – Stan Martin http://www.lexology.com/library/detail.aspx?g=fe318f4e-7fd4-49ac-8acd-0e589b03be01

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Dawn of the Bond – New NMLS Electronic Surety Bond

On September 12, 2016, the Nationwide Multistate Licensing System (“NMLS” or “the System”) will begin receiving and tracking Electronic Surety Bonds (“ESB”). In an unprecedented departure from the traditional uploading of a copy of a surety bond document to the applicant’s or licensee’s record followed by the delivery of the paper bond to the state, regulators in Idaho, Indiana, Iowa, Massachusetts, Texas, Vermont, Washington, and Wisconsin have publicly announced the adoption of ESB in 2016 for several license types. This is the first group of states to “bond on line,” but all states are expected to have a common bond process through the NMLS. Many states require licensed financial services businesses to get a surety bond so that state regulators or consumers may file claims against the bond to cover fines or penalties assessed, or provide restitution to consumers if the licensee fails to comply with licensing or regulatory requirements. The NMLS reports that 177 license authorities currently managed on the system require a licensed company to maintain a surety bond as a condition of licensure. States have even imposed bond requirements on individual mortgage loan originators (“MLOs”), in accordance with the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (the “SAFE Act”), but allow for MLOs to be covered under a company bond. NMLS was created to serve as a comprehensive system of record for licensing information. However, as it relates to surety bonds, the System’s current functionality is antiquated, limited, and does not allow for the tracking of bond requirements, or the maintenance of bond information validated by authorized surety companies and/or bond producers. State regulators have also cited the tracking of surety bond compliance as a reason for processing delays in license applications, amendment filings, and renewal approvals. For those reasons, the State Regulatory Registry LLC, which administers the NMLS, believed a fully electronic surety bond process would provide efficiencies for both industry and regulators. The first phase of this ESB process entailed the creation of an account by each participating surety company and association with those accounts by surety bond producers. The second phase, which will begin September 2016, entails implementation of bond issuance, tracking, and maintenance. If you have not already done so, and especially if you are licensed or intend to become licensed in one of the eight states listed above that will be implementing this new functionality in September, you should ensure that your surety bond company has created an account in the system and be aware of the new application and conversion deadlines that are listed on the NMLS ESB Adoption Map and Table. http://www.lexology.com/library/detail.aspx?g=6c836cd3-60de-4fa2-bb0d-1c64a4447e3c

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Potential Claims Against Mines Worry Financial Industry

Aug. 19 — The threat of third-party claims tied to the EPA’s looming financial assurance rule for hardrock mining is ginning up concerns among financial institutions, top surety backers and industry attorneys say. The new Superfund rule may allow states, tribes, the public and federal agencies other than the Environmental Protection Agency to make claims against hardrock mining financial instruments, such as bonds and letters of credit, the EPA says. That may raise risk to an unreasonable level, large institutions such as AIG, State Farm, Liberty Mutual and others recently told the agency. Industry attorneys supported that concern in interviews with Bloomberg BNA, arguing such language may jeopardize the availability of those instruments. Dec. 1 Deadline The U.S. Court of Appeals for the District of Columbia Circuit approved an agreement in early 2016 to force the EPA to complete the rule by Dec. 1 ( In re Idaho Conservation League, D.C. Cir., No. 14-cv-01149, 1/29/16 ). The Superfund statute, the Comprehensive Environmental Response, Compensation and Liability Act, directed the EPA to complete a financial assurance rulemaking by 1984 making them more than three decades late. Hardrock refers to minerals that contain gold, silver, iron, copper, zinc, nickel, tin, lead and other metals, as opposed to, for instance, coal. The assurances exist to cover any cleanup necessary after the mines are closed. The EPA has indicated it will exempt certain categories of facilities, such as mines less than five acres and stream bed mines that don’t use hazardous substances. Third-party Prospects The EPA is “considering” assurance requirements to cover response costs for hazardous discharges or the threat of discharge, natural resource damages, and to cover health assessments, agency spokesman Melissa Harrison told Bloomberg BNA Aug. 18. The public, alongside states, tribes and other government agencies, “could” claim directly against a financial surety, Harrison said, while pointing out that the agency has met with financial industry representatives. EPA officials are now putting the finishing touches on a study to evaluate the ability of financial institutions to make available CERCLA-compliant sureties. “The draft study report is currently undergoing internal review,” Harrison said. “EPA expects to make the report available before it issues the proposed hardrock mining rule.” ‘Threatened Release Too Subjective.’ That outreach, however, has seemingly left the financial industry apprehensive, according to a Surety and Fidelity Association of America said in a July 14 letter. “The potential that multiple parties, other than EPA, can make a claim under the surety bond significantly enlarges the surety’s exposure to claims, and possibly dilutes the protection available to EPA to fund the response to a release or threatened release,” the organization’s General Counsel Robert Duke told EPA Assistant Administrator Mathy Stanislaus. “Further, the triggering event should be the failure to fund the costs associated with a release. We submit that a ‘threatened release’ could be too subjective to define the bright line that marks when the surety’s obligations are triggered.” Claim rights are likely to be limited to those entities rendering services at or near a mine, rather than public advocates contesting, for instance, environmental degradation, John Jacus, attorney with Davis, Graham and Stubbs LLP, told Bloomberg BNA in an interview. Those eligible entities could include other potentially responsible parties under Superfund law, such as mine operators, Jacus said. Despite reservations from the financial industry, mining companies would probably not be able to own up to all natural resource and heath damage liability, David Chambers, president of the Center for Science in Public Participation, told Bloomberg BNA. The center is a nonprofit corporation formed to provide technical assistance on mining and water quality to public interest groups and tribal governments, according to its website. Moreover, such coverage would be globally unprecedented, he said, noting that current state and other federal agency assurance requirements for mining are geared solely towards reclamation. “I’ll bet you a dime to the dollar the rule reflects present procedure, but I would love to see EPA come out and say you have to compensate all injured parties,” Chambers said. “They’ve been sitting on their hands for 30 years in terms of promulgating this sort of rule. For them to take that stance now would be almost unbelievable.” Market Instability Claimant latitude could cause significant uncertainty in the surety market, indicating financial institutions may require more higher-priced sureties, a number of mining experts said. “The ramification of an overly conservative bond for the entity that needs to get the bond is that it costs more; annual costs simply go up for bonding that may not be serving any particular purpose,” Stephen Smithson, a lawyer with Snell and Wilmer, told Bloomberg BNA. “As it becomes a bigger bond and a bigger pool of money that third parties can make claims against, financial institutions begin incurring more costs defending against those claims. It just makes them a bigger target.” Smithson and Chambers said financial institutions historically underestimated cleanup costs and, in the late 90s, had to pony up more money than expected tied to bonds, leading many insurers to leave the market. The duration of the bond also is a critical consideration, said the surety and fidelity association. “A surety bond with a long duration increases the risk to the surety,” Duke wrote to the EPA. “To compensate for the increased risk due to the diminished certainty of underwriting, sureties typically raise their underwriting standards, and provide long-term bonds only to the largest and most financially sound operators. We recommend that the implementing regulations should contain measures by which the surety can control the duration, such as a cancellation clause in the bond.” For example, acid drainage requires water monitoring “in perpetuity,” Chambers said. Self-Bonding The EPA left the door open for self-bonding permission in outreach to interested parties and Bloomberg BNA, saying credit rating-based financial tests and corporate guarantees may be permissible. Jacus said self insurance, accompanied by monitoring that could compel market assurances, helps to diversify industry options. But the questionable ability of self-bonded coal operators to pony up cash for

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