Oil Companies Were Paid Twice to Clean Up Their Own Leaking Tanks

Oil companies used state-allocated funds to clean up underground fuel leaks while also accepting payment from insurance companies for the task, essentially defrauding state governments.

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Oil companies used state-allocated funds to clean up underground fuel leaks while also accepting payment from insurance companies for the same task, essentially defrauding state governments, according to a new report from Reuters.

Author Mica Rosenberg explains that each state has money set aside to deal with shoddy steel tanks, many of them as old as six decades, that are rusty and leaking diesel and gas into the ground. The oil companies that own the tankers use this money to fix up the leaks, preventing potential carcinogens from entering local aquifers. A team of two investigators, however, has discovered that the companies often double up on payment — accepting insurance money in addition to federal funds to clean up their messes.

Former Environmental Protection Agency employee Thomas Schruben and lawyer Dennis Pantazis probed the cases together, and were soon hired by state governments to sue the companies suspected of fraud. According to Reuters, they are currently working on 20 cases throughout the country.

Chevron, Exxon, ConocoPhillips and Sunoco have settled with 9 states for over $105 million altogether, but have not admitted guilt. Other companies currently in litigation have called the accusations baseless, or contended that they turned to the state as soon as they learned that they had received insurance money on top of the federal funding. But it's hard to believe, based on cases detailed by Reuters, that the companies acted in good faith:

One document from 2006, for example, shows Chevron received a check for $19,000 from the state to clean up and monitor a leak at a gas station in the small, southern New Mexico town of Artesia. On the application to receive money from the tank fund, the company checked "No" next to the question: "Do you have insurance?" The lawsuit accused Chevron of receiving insurance payouts to deal with many kinds of environmental contamination, including policies that would have covered leaks at the gas station in Artesia - a fact it kept hidden from the state.

Just this week, Minnesota sued BP PLC for $25 million over fraud. According to the Star Tribune, the Minnesota Commerce Department is accusing the notoriously leaky firm of violating the state's False Claims Act in addition to fraud, misrepresentation, and unjust enrichment. Minnesota Commerce Commissioner Mike Rothman said "they lied on their applications." For its part, BP said it has acted in good faith and that it "plans to defend itself against the allegations in the complaint." According to the Tribune, BP may have a hard time doing so:

From 1988 until now, BP submitted 1,407 applications to the fund for cleanups of underground storage tanks around the state, the suit alleged. In each case, the suit said, BP was required to say whether it had insurance to cover the cleanup. In every case, the suit alleges, BP had insurance coverage that it concealed from the five-member Petrofund board. BP and its predecessor, Amoco, even went to court against insurers to collect on policies through settlements of nearly $300 million, the suit said.

Meanwhile, some independently-owned gas stations can't afford insurance, and are allowing dangerous material to leak into the ground. According to the Detroit Free Press, Michigan funds that should be used to clean up gas leaks have been diverted and, without insurance, gas stations are ignoring the mounting problem:

Contamination from more than 9,000 leaking underground petroleum storage tanks in Michigan has awaited cleanup for years, as a gasoline regulatory fee intended to fund such work was diverted by state lawmakers to plug general fund budget holes over the past decade.

It seems we need a massive overhaul in how we deal with leaks -- when they're dealt with them at all.

This article is from the archive of our partner The Wire.