Tennessee sues Chevron over petroleum spill cleanup costs

It's an obscure tax all Tennessean drivers pay each time they fill up at the pump — four-tenths of a penny per gallon for a cleanup fund created to protect the public from contaminated groundwater and soil after accidental leaks at underground petroleum tanks located mostly at gas stations.

The Tennessee attorney general is now accusing one of the nation's largest petroleum companies — Chevron and its subsidiaries, including Texaco — of a 30-year "prolonged and costly scheme" to fraudulently siphon more than $18 million from the fund.

The fund reimburses tank owners for expenses during spill cleanups, but is intended as a last-resort fund for owners who cannot afford the costs. Owners with private insurance must first seek cleanup costs from their insurance companies.

The lawsuit alleges the companies used taxpayer funds to pay for leaks and spills at more than 100 Tennessee gas stations — despite having private insurance that paid for the cleanup costs.

The lawsuit filed in Davidson County Chancery Court also accuses Chevron and its subsidiaries of filing falsified paperwork for millions of dollars to pay for leaks at storage tanks that occurred before the cleanup fund was operating.

In its applications for cleanup costs, the company "misled" the state and continued to "misrepresent the insurance status of the facilities," the lawsuit said.

The state is seeking more than $18 million in funds to be returned as well as penalties ranging between $2,500 and $10,000 for each false claim filed.

The fund has paid out more than $370 million to hundreds of tank owners across the state since it was created in 1988.

Company seeks to dismiss lawsuit

A spokesman for the attorney general declined to comment on the pending case. Chevron company attorneys with Nashville law firm Waller did not respond to a request for comment.

But the company is seeking to dismiss the lawsuit, claiming in some instances Chevron and its subsidiaries had sought state funds to make up the difference in their cleanup costs from the "pennies-on-the-dollar" claim payouts from their insurers.

The lawsuit alleges that Chevron and its owners engaged in a practice known as double recovery. It cites evidence of insurance purchased as far back as 1947 by Chevron and its subsidiaries, which in some cases were recouping the funds before being acquired by Chevron. The suit also claims Chevron ran its own insurance companies. Those insurance companies provided coverage for multiple releases at Tennessee spill sites from 1976 to the present, according to the lawsuit. Chevron also sued 125 insurance companies to enforce its claims, eventually settling for $286.5 million to cover leaks and spills across the country. Texaco, which merged with Chevron, similarly received $362 million from insurers for leaks across the country. Unocal, which was purchased by Chevron, received $68.6 million from insurers.

The companies "certainly did not double recover," a company filing said.

The company also noted that Tennessee had long ago approved the payments from the cleanup fund, including spills that took place before the 1988 law was enacted.

And the company said there is no record on a state-maintained website of any cleanups at 25 of the gas stations cited in the attorney general's lawsuit, demonstrating the state's "scattershot approach" to the sweeping lawsuit.

Pattern in other states

Chevron and other major oil corporations have been accused of employing a similar scheme in other states.

In Arizona, Chevron and ExxonMobil entered into a legal settlement for $25.5 million over similar allegations the companies had fraudulently collected $47 million in subsidies for cleanup efforts at leaking underground oil tanks paid for by their private insurance.

In New Mexico, Chevron settled for $5.2 million after receiving $4 million in reimbursements for dozens of cleanup claims. The state claimed they were double-billing insurance companies for the same cleanups.

And in Minnesota, Chevron, ExxonMobil and ConocoPhillips agreed to repay $7.4 million after state investigators accused them of similarly double-dipping for cleanup costs their insurance companies had already paid for.

In none of the cases has Chevron or other oil companies admitted wrongdoing.

The state's gas tax was enacted in 1988 after state lawmakers passed a law creating a fund for tank owners — typically gas station owners, but also including car dealerships, mechanics shops, marinas and some large office buildings that have their own generators. The gas tax generated $18 million in the last fiscal year, according to a the state's Department of Underground Storage Tanks. Tank owners are also required to pay a $125 per tank fee per year.The law was prompted by Environmental Protection Agency regulations on environmental cleanups for underground storage tanks intended to protect public health and safety.

Owners of the tanks are required to register with the Department of Underground Storage Tanks at the Department of Environment and Conservation. They are also required to report a leak within 72 hours.

A court date on Chevron's move to dismiss the lawsuit and to seek a protective order limiting the amount of document requests the state can make has not yet been set.

Reach Anita Wadhwani at 615-259-8092 or on Twitter @AnitaWadhwani.