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Insurance Coverage for Residential Oil Spills: Make Sure you Meet the Requirements for Coverage

Ann Sobolewski March 1, 2010

Approximately 300 residential oil spills are reported to the Massachusetts Department of Environmental Protection (DEP) each year.  It has historically been difficult for residential homeowners to obtain insurance coverage for oil contamination on their property, largely because homeowners insurance policies were intentionally crafted to exclude coverage.  The cost to remediate a residential oil spill can run into the tens of thousands of dollars, more if there is also groundwater contamination.  Without insurance proceeds, some property owners have been unable to comply with the clean up requirements or have been forced to deplete their savings, retirement or college funds.

A new law designed to reduce residential spills and require insurers to provide coverage, c. 453 of the Acts of 2008 (the “Act”) was enacted in January 2009 with an effective date of July 2010.  The act defines residential property to include buildings of between 1 and 4 units and, therefore, is broader than mere single family homes.

There are three elements to the Act.  First, improvements to older residential fuel oil heating systems must occur by July 1, 2010.  Those systems must install automatic shutoff valves on the oil storage tanks or enclosed fuel supply lines and have the installation inspected (and certified) by a licensed oil burner technicians.

Second, insurance companies doing business in Massachusetts must make both first party property and third party liability coverage available to homeowners with certified system upgrades.  The Act sets a minimum coverage limit of $50,000 for "response action costs incurred to assess and remediate a heating oil release impacting soil, indoor air or other environmental media on the insured’s property and the reimbursement of any associated personal property damage”.  The minimum coverage limit for third-party liability is set at $200,000, and legal defense costs.  Notably the third party liability coverage is defined to include instances where the release has impacted groundwater and has or is likely to impact the off-site property.  First and third party liability coverage are to apply in addition to each other, where both are available.  Although the Act does not set premiums, it does require that premiums for this coverage be "reasonable”.

Finally, the DEP is required to prepare a proposal to reduce the fee amounts it imposes for environmental remediation of residential oil releases.  The DEP, in consultation with the Board of Fire Prevention Regulation” is also required to prepare a fact sheet "describing the risks posed by the release of home heating oil into the environment, the benefits of preventive measures, the preventive measures required by this act and the availability of insurance coverage for such risks in accordance with this act".

While the Act does not resolve all of the issues faced by a homeowner with a residential oil spill, it significantly changes the landscape for the better.  Homeowners with oil heating systems should investigate the available insurance and take advantage of this new program in order to lessen their potential risk.

This Alert is provided for information purposes only, and does not constitute legal advice.  According to Mass. SJC Rule 3:07, this material may be considered advertising. ©2010 Posternak Blankstein & Lund LLP.  All rights reserved.

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