Title of Regulation: 12VAC5-612. Regulations to Implement the Onsite Sewage Indemnification Fund (adding 12VAC5-612-10 through 12VAC5-612-100).

Statutory Authority: § 32.1-164.1:01 of the Code of Virginia.

Public Hearing Information: No public hearings are scheduled.

Public Comments: Public comments may be submitted until 5 p.m. on August 7, 2009.

Agency Contact: Allen Knapp, Environmental Health Coordinator, Department of Health, 109 Governor Street, Richmond, VA 23219, telephone (804) 864-7458, FAX (804) 864-7476, or email allen.knapp@vdh.virginia.gov.

Basis: Section 32.1-164.1:01 of the Code of Virginia gives the Board of Health authority to adopt regulations and administer Virginia’s onsite sewage indemnification fund program. The Code of Virginia states that the Board of Health "may promulgate regulations pursuant to the Administrative Process Act (§ 2.2-4000 et seq.) for the administration of the fund consistent with this chapter." The authority is discretionary.

Purpose: The VDH proposes regulations to administer the fund. The regulation is essential because implementing the code through policy has led to uncertain outcomes, inconsistent results, and lengthy decision processes. The regulations will encourage owners to repair failing systems as quickly as possible.

The goals of the regulations are to provide notice of the fund, establish the application for reimbursement from the fund, and establish the procedure for investigating and processing requests for assistance.

Substance: The regulations will require all provisions and mandates in § 32.1-164.1:01 of the Code of Virginia. The regulations will require owners to submit complete applications within one year of the date of first failure. The regulations will specify the requirements for a complete application, which will include the actual cost of reimbursement. In cases of demonstrated financial hardship, the regulations will provide an opportunity for partial reimbursement before the complete system is actually installed. Before receiving payment, an owner must sign a release and hold harmless agreement. The regulations will include requirements for decisions and how owners may challenge decisions. The regulations will also state that the commissioner may assist owners whose sewage systems fail within three years of construction from private party error.

Issues: The public’s primary advantage is getting a clear and simple application to seek reimbursement. The public will also have a clearly outlined evaluation process for considering reimbursement requests. Owners can anticipate consistent and fair outcomes with the regulations. In cases of financial hardship, the public will have opportunity for reimbursement before the failing system is repaired. Because the regulation reimburses qualified owners, has financial hardship allowances, and provides an appeal process for unwanted outcomes, the agency does not foresee a disadvantage to the public, private citizens, or businesses.

The primary advantage to the agency is getting an established process with public input. An established process by regulation will assure that decisions are fair and consistent with the mandates of the Code of Virginia. The agency does not foresee any disadvantage with the regulations.

The Department of Planning and Budget's Economic Impact Analysis:

Summary of the Proposed Amendments to Regulation. Per Virginia Code § 32.1-164.1:01, the Onsite Sewage Indemnification Fund’s purpose is to assist any Virginia real property owner holding a valid permit to operate an onsite sewage system when such system or components thereof fail within three years of construction and such failure results from the negligence of the Department of Health (Department). Currently, the fund is administered in accordance with a guidance document issued by the Department. This document establishes the application procedure for property owners to apply for assistance from the fund and establishes the procedure for investigating and processing requests for assistance from the fund. Additionally, it specifies what information must be included and which actions the owner must take in order to file a complete application for assistance from the fund.

The Board of Health (Board) proposes to incorporate the provisions of the guidance document into new regulations. Also, the proposed regulations would add a new provision which allows individuals who demonstrate a financial inability to repair the onsite sewage system to receive financial assistance before the onsite sewage system is repaired. Individuals who have the financial ability to repair the onsite sewage system must apply for assistance in the form of a reimbursement after the repairs are complete.

Result of Analysis. The benefits likely exceed the costs for all proposed changes.

Estimated Economic Impact. Establishing the procedures and rules within the guidance document in regulation will be beneficial in that the public will have a clearly outlined and consistent evaluation process for considering reimbursement requests. Since guidance documents do not have the same binding legal authority as regulations, according to the Department property owners seeking assistance from the Fund have, in some cases, endured a long, unpredictable review process. Specifically, cases with similar facts have had different outcomes depending on the individual members of the Sewage Handling and Disposal Appeal Review Board’s willingness to adhere to the procedures and rules within the guidance document that did not carry the force of law. The Department expects that there will be more consistency and less delay with the procedures and rules in regulation.

The proposed new provision which allows individuals who demonstrate a financial inability to repair the onsite sewage system to receive financial assistance before the onsite sewage system is repaired will clearly be beneficial for such individuals without producing significant costs. Thus a net benefit will be created.

Businesses and Entities Affected. The proposed amendments affect Virginia real property owners with an onsite sewage system that fails within three years of its construction date and who believe the failure is due to the negligence of the Department. The Department estimates that there are 24 to 30 such cases per year.

Localities Particularly Affected. The proposed amendments do not disproportionately affect particular localities.

Projected Impact on Employment. The proposed regulations are unlikely to significantly affect employment.

Effects on the Use and Value of Private Property. The proposal to allow individuals who demonstrate a financial inability to repair the onsite sewage system to receive financial assistance before the onsite sewage system is repaired will likely speed and perhaps increase the frequency that such sewage systems are repaired. This will increase the value of associated properties.

Small Businesses: Costs and Other Effects. The proposals do not adversely affect small businesses.

Small Businesses: Alternative Method that Minimizes Adverse Impact. The proposals do not adversely affect small businesses.

Real Estate Development Costs. The proposed regulations are unlikely to significantly affect real estate development.

Legal Mandate. The Department of Planning and Budget (DPB) has analyzed the economic impact of this proposed regulation in accordance with § 2.2-4007.04 of the Administrative Process Act and Executive Order Number 36 (06). Section 2.2-4007.04 requires that such economic impact analyses include, but need not be limited to, the projected number of businesses or other entities to whom the regulation would apply, the identity of any localities and types of businesses or other entities particularly affected, the projected number of persons and employment positions to be affected, the projected costs to affected businesses or entities to implement or comply with the regulation, and the impact on the use and value of private property. Further, if the proposed regulation has adverse effect on small businesses, § 2.2-4007.04 requires that such economic impact analyses include (i) an identification and estimate of the number of small businesses subject to the regulation; (ii) the projected reporting, recordkeeping, and other administrative costs required for small businesses to comply with the regulation, including the type of professional skills necessary for preparing required reports and other documents; (iii) a statement of the probable effect of the regulation on affected small businesses; and (iv) a description of any less intrusive or less costly alternative methods of achieving the purpose of the regulation. The analysis presented above represents DPB’s best estimate of these economic impacts.

Agency's Response to the Department of Planning and Budget's Economic Impact Analysis: The agency concurs with the economic impact analysis submitted by the Department of Planning and Budget.

Summary:

The regulations administer § 32.1-164.1:01 of the Code of Virginia, which creates the Onsite Sewage Indemnification Fund. The fund reimburses Virginia real property owners whose onsite sewage systems fail within three years of construction from the negligence of the Virginia Department of Health (VDH). In order to receive assistance, the commissioner must find that the Virginia real property owner:

1. Meets the statutory requirements specified in the Code of Virginia (i.e., valid permit, failure of onsite sewage system within three years from installation, negligent actions by VDH caused failure);

2. Submits a complete application within one year of the date of failure;

3. Follows the requirements to repair or replace the failed system; and

4. Executes a release of claims against the Commonwealth related to the failed system.

If the commissioner finds that the onsite sewage system failed within three years from faulty construction or other private party error, then the commissioner may assist the owner in seeking redress from the system’s builder or other private party.

CHAPTER 612
REGULATIONS FOR THE ONSITE SEWAGE INDEMNIFICATION FUND

12VAC5-612-10. Purpose.

The purpose of this chapter is to:

1. Provide notice of and administer the Onsite Sewage Indemnification Fund (hereinafter, the fund) as established by § 32.1-164.1:01 of the Code of Virginia.

2. Establish the application for Virginia real property owners to use for reimbursement from the fund.

3. Establish the procedure for investigating, processing, and evaluating requests for assistance from the fund.

12VAC5-612-20. Definitions.

The following words and terms when used in this chapter shall have the following meanings unless the context clearly indicates otherwise:

"An onsite sewage system that has been permitted by the Department of Health" means that the Department of Health issued an operation permit in accordance with the Sewage Handling and Disposal Regulations, 12VAC5-610, or its successor.

"Appeal Review Board" means the Sewage Handling and Disposal Appeal Review Board as established by § 32.1-166.1 of the Code of Virginia.

"Commissioner" means the Commissioner of Health, Virginia Department of Health.

"Date of first failure" means the date that a Virginia real property owner submits a repair application to the local health department or the date that a local health department sends a notice to the owner that acknowledges that an apparent failure exists, whichever occurs first.

"Date of system construction" means the date that the local health department inspected and approved the onsite sewage system's construction or the date that the contractor or person who installed the onsite sewage system certifies that the onsite sewage system was installed properly (as evidenced by a completion statement), whichever occurs first. The date of construction is not the date that the local health department issued a permit to operate the sewage system.

"Department" means the Virginia Department of Health.

"Division" means the Division of Onsite Sewage and Water Services, Virginia Department of Health.

"Holding a valid permit to operate an onsite sewage system" means that the Virginia real property owner received a valid operation permit for the onsite sewage system that failed.

"Onsite sewage system" means a treatment works approved in accordance with the Sewage Handling and Disposal Regulations, 12VAC5-610, or its successor.

"Onsite sewage system failure" means an onsite sewage system is not operating in a normal or usual manner as defined by the Sewage Handling and Disposal Regulations, 12VAC5-610, or its successor.

"Onsite sewage system component failure" means that a part or discreet element of the onsite sewage system is not operating in a normal or usual manner, which, when corrected, repaired, or replaced, will return the system to normal function.

"Specific actions of the department were negligent and that those actions caused the failure" means (i) the department had a duty to perform, (ii) the department breached or failed to perform the duty, (iii) the breach of duty or failure to perform the duty proximately caused the actual damage or injury, and (iv) the owner incurred damage or injury.

12VAC5-612-30. Applicability.

This regulation applies to construction permits issued and approved in accordance with the Sewage Handling and Disposal Regulations (12VAC5-610), or its successor. The department will look to the Sewage Handling and Disposal Regulations to resolve any technical issue associated with a request for reimbursement from the fund,

12VAC5-612-40. Complete application.

A. To file a request for reimbursement, the Virginia real property owner must submit a complete application within one year of the date that the system or components thereof failed. The request must be sent by certified mail in a form approved by the division. If the owner was under a disability at the time the cause of action accrued, the tolling provisions of § 8.01-229 of the Code of Virginia will apply. In any action contesting the filing of the request for payment, the burden of proof will be on the Virginia real property owner to establish mailing and receipt.

B. A complete application shall contain all information required by the division, including, but not limited to the following:

1. The owner's name, current address, telephone numbers, and property identification;

2. The property address where the sewage system failed;

3. The date the contractor installed the sewage system;

4. The date the health department approved the sewage system (issued an operation permit);

5. The date the Virginia real property owner filed an application to repair the failed system with the local health department;

6. The date the Virginia real property owner received a notice from the local health department indicating that the sewage system had apparently or actually failed;

7. The date(s) the Virginia real property owner made or hired a contractor to make repairs to the failed sewage system;

8. A description of the repairs made, the date for each repair, and the itemized cost for repairs on each date; and

9. The Virginia real property owner's signature.

C. The Virginia real property owner must attach a copy of receipts, invoices, bills of sale, and canceled checks to substantiate the costs incurred to repair the failed sewage system. The division may request original receipts, invoices, or canceled checks. The commissioner may withhold reimbursement to the Virginia real property owner pending submission of the original receipts, invoices, or canceled checks.

D. Except as provided in 12VAC5-612-50, the commissioner will not act on an incomplete application. A complete application means that the onsite sewage system or components thereof that failed have been repaired or replaced in accordance with the Board of Health's applicable regulations.

E. By completing the application, the Virginia real property owner provides consent for the Virginia Department of Health, the division, the local health department, or other experts deemed necessary by the division to enter onto the property during normal business hours and to perform all tests and analysis deemed necessary to evaluate the request for assistance.

12VAC5-612-50. Financial hardship.

For situations where an application is incomplete because the Virginia real property owner cannot afford or does not have the financial ability to install the repair system or components thereof to comply with the Board of Health's regulations, then the commissioner may consider the incomplete application, subject to the following conditions:

1. The owner must substantiate and verify that he does not have the financial means to install the repair or components thereof. Acceptable verification of financial status may include, but is not limited to, the following: pay stubs, federal tax returns, written statements from employers, social security or retirement awards, unemployment compensation, child or spousal support from nondependant household members, or a bank loan denial letter.

a. For Virginia real property owners whose adjusted gross income is below 250% of the federal poverty guidelines as published each year in the Federal Register, the commissioner may review the incomplete application.

b. For owners whose adjusted gross income is 250% or greater than the federal poverty guidelines as published each year in the Federal Register, the commissioner may review the incomplete application when the Virginia real property owner has been denied a loan. The bank loan denial letter must cite that the Virginia real property owner cannot qualify for a personal loan, a home equity line of credit loan, or any other loan offered by the bank for the amount needed to repair the onsite sewage system or components thereof.

2. The Virginia real property owner must submit three estimates from properly licensed contractors based on the repair permit issued by the local health department to install the repair system or components thereof. The commissioner may consider fewer estimates if requested by the Virginia real property owner and a sufficient reason is provided as to why three estimates cannot be obtained.

12VAC5-612-60. Informal fact-finding conference.

A. Following submission of a complete application, a Virginia real property owner may request an informal fact-finding conference in accordance with the Administrative Process Act (§ 2.2-4000 et seq.) of the Code of Virginia to assist the division in gathering facts for an application to the fund.

B. A verbatim record of the informal fact-finding conference is not required. Any party may request a verbatim record and the requesting party is responsible for making a verbatim record. When a verbatim record is made at the commissioner's direction, it shall constitute the official record of the proceedings. The commissioner shall review the facts presented and render a case decision based upon those facts.

12VAC5-612-70. Decision.

A. The division will evaluate complete applications and provide a recommendation to the commissioner. Upon the commissioner's finding that (i) the onsite sewage system or components thereof failed within three years of construction; (ii) specific actions of the department were negligent and that those actions caused the failure; and (iii) the owner filed a request for payment from the fund within one year from the date the system or components thereof failed, then the commissioner will reimburse the Virginia real property owner for the reasonable cost of following the Board of Health's regulations to repair or replace the failed onsite sewage system or components thereof and subject to the limitations and conditions in this chapter and § 32.1-164.1:01 of the Code of Virginia.

B. If the commissioner finds that (i) the Virginia real property owner's onsite sewage system was permitted by the department, (ii) the system failed within three years of construction, and (iii) the failure resulted from faulty construction or other private party error (the department's negligence, if any, did not cause the sewage system to fail), then the commissioner may assist the owner of the failed system in seeking redress from the system's builder or other private party. The assistance will be limited to providing expert services and information.

12VAC5-612-80. Release and hold harmless agreement.

Reimbursement from the fund is conditioned upon the Virginia real property owner completing a release and hold harmless agreement as required by the division and in a form approved by the division. The Virginia real property owner must release and hold harmless the Commonwealth, its political subdivisions, agencies and instrumentalities, and any officer or employee of the Commonwealth in connection with or arising out of the occurrence complained of.

12VAC5-612-90. Appeal Review Board.

A. The Appeal Review Board may review the commissioner's decision to reimburse or to deny reimbursement under this chapter. To request a review, the Virginia real property owner must file a written request for review to the Appeal Review Board and in accordance with the Appeal Review Board's directives and authority.

B. In reviewing cases and rendering final administrative decisions, the Appeal Review Board is bound by statutes and the Board of Health's regulations in the same manner as implemented or directed by the department, the commissioner, or the local and district health departments.

C. The Appeal Review Board must cite in its written decision whether the appellant proved by a preponderance of the evidence that (i) the onsite sewage system or components thereof failed within three years of construction; (ii) specific actions of the department were negligent and that those actions caused the failure; and (iii) the owner filed a request for payment from the fund within one year from the date the system or components thereof failed. The decision must cite the date of construction, the date of first failure, and the date that the owner filed a request for payment from the fund. The decision must explain the specific actions of the department that were or were not negligent and how those actions did or did not cause the failure.

D. The Appeal Review Board may provide the Virginia real property owner and the department an opportunity to reconsider its written decision. Any party requesting a rehearing of the Appeal Review Board's decision must file a written request for rehearing to the secretary to the Appeal Review Board within 14 calendar days of the Appeal Review Board's decision. The request for rehearing must explain why it is requested and necessary. Upon such request, the Appeal Review Board may, at its own discretion, schedule a rehearing to reconsider or clarify its decision. The Appeal Review Board must notify the department and the Virginia real property owner within 14 calendar days of the request whether a rehearing will be granted or whether a new decision will be made. If the Appeal Review Board grants a rehearing of the case decision, then the prior case decision will be vacated.

E. In accordance with § 32.1-166.1 of the Code of Virginia, the Appeal Review Board shall render the final administrative decision, which may be appealed by a named party to the appropriate circuit court in accordance with the Administrative Process Act (§ 2.2-4000 et seq. of the Code of Virginia).

12VAC5-612-100. Prohibitions and limitations.

A. A Virginia real property owner cannot be reimbursed for both the cost of the failed system and the cost for repairs or components thereof. If the costs to repair the system or components thereof are less than the cost of the failed system, only the costs to repair the system or components thereof can be reimbursed.

B. If the cost to repair the system or components thereof exceeds the cost of the failed system, only those costs that are directly attributed to labor (which includes design) and equipment (which includes materials) will be reimbursed.

C. Virginia real property owners will not be reimbursed for consequential damages in accordance with § 32.1-164.1:01 E of the Code of Virginia.

D. Installing or modifying a sewage system without a valid construction or repair permit automatically voids any application for assistance from the fund. Any Virginia real property owner who did not possess a valid operation permit for the onsite sewage system's installation or who operated the onsite sewage system without a valid permit will not be entitled to assistance from the fund.

E. In issuing a construction permit pursuant to § 32.1-163.5 of the Code of Virginia, the Department of Health will not assume liability for actions and decisions made by private parties.

F. The fund will not reimburse any Virginia real property owner more than $30,000 for an onsite sewage system failure or component thereof.

G. In the event the fund is insufficient to meet requests for payment, the creation of the fund shall not be construed to provide liability on the part of the department or any of its personnel where no such liability existed prior to July 1, 1994.

H. Before payment or assistance is disbursed, the Virginia real property owner must:

1. Submit an application to repair the sewage system or components thereof to the local health department in the city, county, or town where the property is located.

2. Receive a repair permit from the local health department.

3. Complete the requirements in the repair permit and receive an operation permit unless exempted by 12VAC5-612-50.

4. Sign the required release and hold harmless agreement.

FORMS (12VAC5-612)

Release and Hold Harmless Agreement, IF (eff. XX/XX).

Application for Indemnification, IF 2 (eff. XX/XX).