Oil spill insurance coverage

Homeowners frequently want to sue their insurers for fuel oil contamination, even if they only have third party coverage. Several years ago, many insurers amended their policies to remove first party (own property) coverage for oil spills, unless homeowners paid a special premium. Few paid the extra premium, and thus many find themselves with nothing but third party coverage when a spill occurs, or is discovered.

Insurers will typically pay for some degree of cleanup, in order to prevent or control offsite migration, which triggers third party coverage. However, offsite migration can be stopped without cleaning the owner’s property to applicable government criteria. This often leaves the homeowner in a very difficult position.In Cole v. Aviva Insurance Company of Canada, a Newfoundland judge has tried to help homeowners by suggesting a new interpretation: if groundwater on the homeowner’s property is contaminated, doesn’t that affect the interests of the provincial Crown in groundwater? And if Crown interests are affected, isn’t the third party coverage triggered?The judge raised this issue of his own motion, after reserving his decision on liability at trial. He therefore ordered the parties to resume discoveries and to present further evidence on the issue; the results of this process, and of any appeal, are still unknown. But if the plaintiff is ultimately successful, watch for another wave of lawsuits against insurers, quickly followed by new restrictions in the wording of home insurance policies.