Make Sure Your Homeowners Policy Covers Leaking Tanks

Written by Posted On Wednesday, 28 March 2007 17:00

When you purchase homeowners insurance, you are purchasing protection from potentially crippling financial risks. Its good to know that if something happens to your home, that insurance is available to get you back on your feet.

Because this is what people expect, I find it curious that homeowner's policies often will not cover leaking oil tanks. And very often, homeowners are not aware of this coverage gap until a tank problem takes place.

Since a buried leaking oil tank can result in a very sizable oil spill that can potentially costs tens of thousands of dollars (or more) to address, homeowners must make sure that they protect themselves and their finances.

When a buried oil tank leaks, oil often is released into the soil that is underneath the tank. If a large amount of oil is released, the oil may travel beyond the tank area and impact substantial amounts of soil.

When this happens, many insurance policies will not pay to remove the tank and the contaminated soil. This is because many policies consider this to be harm to the policyholder's own property, and the insurance policy will expressly exclude these costs from coverage.

If the contamination travels through the soil into the groundwater, this is often both good and bad news.

It's good news because many homeowners policies will pay for damage to "third parties" from tank leaks, and the groundwater is often considered to be owned by a third party.

It's bad news because contaminated groundwater can be very costly to remediate, costing tens of thousands of dollars, or costing hundreds of thousands of dollars to clean. Which means cleanup costs may exceed insurance policy limits and the cleanup may take years to finish.

However, some homeowners policies are written in a manner that arguably excludes tank leaks affecting groundwater. They have carved this out by adding what is called a "pollution exclusion" provision to the policy.

If you are buying homeowners insurance and have an oil tank, be certain to ask your agent to provide a quote for a policy that will handle as much of a tank leak claim as possible. In my opinion, the agent has the responsibility to ask you whether you have an oil tank, and if so, to provide you with a variety of options for dealing with this risk -- to the extent such options are present.

With this in mind, investors also need to be aware that many commercial policies that an investor might purchase to cover rental properties also contain pollution exclusion clauses. Investors should ask their agents whether any insurance is available to address leaking tanks serving their investment properties.

If you think that tank leaks are rare -- think again. They happen all of the time and many people have either no or little coverage. The time to try to guard against being uninsured for this risk is when the insurance policy is being purchased.

Note that government loans and grants may also be available to pay for leaking tank cleanups. Also some fuel merchants may sell insurance -- kinds of products that can also offer some level of protection.

And if a forensic investigation proves that a tank leak started when a former homeowner was living at the residence, litigation may also be available to seek financial contribution from that former owner.

When purchasing your homeowners policy, don't just accept whatever your insurance agent proposes. Make sure that what is being sold to you will cover losses, including tank leak costs -- to the extent that such coverage is available in your state.

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