Now Homeowners Need To Protect Themselves

By Richard A. McGrath, CIC, LIA

Some Massachusetts homeowners will soon find out how BP feels.  Under a new law that takes effect on Sept. 30, 2010, they may be liable for hundreds of thousands of dollars in damages if their heating oil tanks leak.

Most homeowners’ policies will not cover oil spills.  While insurance carriers are now required to provide coverage for losses caused by oil spills, even when homeowners purchase separate coverage, it may not provide the full coverage they need, according to the Massachusetts Association of Insurance Agents (MAIA).

On the surface, the “Act Relative to Homeowner Heating Safety,” also known as Chapter 453 of the Acts of 2008, seems simple.  It includes two major requirements:

  • Homeowners who own heating oil tanks must conform with new code requirements.
  • If homeowners’ oil tanks conform to the requirements, insurance carriers must make coverage available to them for losses caused by oil spills.

The code requirements apply to all tanks, whether they are at or below grade level, and whether they are indoors or outdoors.  Tanks cannot be grandfathered.

To conform, any homeowner using a heating oil tank with one or more fuel supply lines or return lines in direct contact with “concrete, earth or other floor surfaces” must enclose the supply line with a continuous, non-metallic sleeve, install an oil safety valve at the tank end “in accordance with the manufacturer’s instructions” or “employ any other release prevention method approved by the (Board of Fire Prevention).”

Homeowners are exempt if the oil burner is located above the oil storage tank and the entire oil supply line is connected to and above the top of the tank.  They are also exempt if an oil safety valve or oil supply line with a protective sleeve was installed on or after Jan. 1, 1990 and the existing value and protective sleeve comply with oil burning equipment regulations.

A copy of the oil burner permit from the local fire department can be used to demonstrate compliance or compliance can be certified by a licensed oil-burner technician.

If a tank is not in compliance, the cost of installing either an oil safety valve or oil supply line with a protective sleeve should range from $150 to $350, including labor, parts and local permit fees, according to the Massachusetts Department of Environmental Protection (DEP).  Financial assistance of up to $300 is available through the Low Income Home Energy Assistance Program (LIHEAP) for households that meet income criteria (for more information, go to or call 800-632-8175).

What Insurance Covers

Chapter 453 also requires that all carriers insuring residential property, which includes homes for one to four families, offer homeowners who are in compliance with Chapter 453 a minimum of $50,000 for first-party property and $200,000 for third-party liability coverage in case of oil spills.

Under a typical homeowner’s policy, damage to your home’s contents caused by an oil spill or leak is not a “named peril” and will be covered only if damage by oil is a result of a named peril.  For example, if your oil tank leaks because it is not properly maintained, you will not be covered, but if someone breaks into your home and vandalizes it by opening the valve on your tank, you will likely be covered.

Even those with special and comprehensive homeowner’s coverage will not be covered in most cases, because coverage excludes “discharge, dispersal, seepage, migration, release or escape” of pollutants, unless caused by a covered peril.  Homeowners also need to worry about oil sinking into the ground and contaminating groundwater or a neighbor’s property.

While a typical homeowner’s policy would provide legal representation and payout if the homeowner is found liable for groundwater contamination or contamination of a neighbor’s property, some carriers have added a pollution exclusion that exempts them from such coverage.  In addition, as a reaction to the Massachusetts regulation, some insurers are adding a “pollution from fuel system” exclusion to renewals and new policies.

Obtaining coverage for groundwater pollution is important because of the cost of a cleanup if you are found liable.  The DEP says that the cost can be $250,000 or more, while the MAIA says the cost can exceed $1 million.

While the new law requires carriers to offer coverage of up to $50,000 for first-party property, endorsements with limits of up to $100,000 per occurrence are already being offered.  The endorsement covers not only damage to insured property, but cleanup and testing, and living expenses if the homeowner must temporarily move out of the home because of the spill.

The big concern, though, is third-party liability coverage.  If a policy covers $200,000 and the cost comes to hundreds of thousands of dollars more than that, the homeowner may be in serious trouble.  In some cases, an umbrella policy may provide the additional coverage that may be needed.

Insurers are required to make this coverage available at a “reasonable cost,” according to the new law, although what is reasonable is not specified.  They may also require a deductible of up to $1,000 per claim.

The new law is more complex than it seems.  While the potential for an oil spill may seem remote, if it happens, the financial impact could be catastrophic.  Be sure to discuss the new law with your insurance agent.  Find out what coverage you have and what coverage you should have to get the protection you need.

Richard A. McGrath, CIC, LIA is President and CEO of McGrath Insurance Group, Inc. of Sturbridge, Mass.  He can be reached at

This article is written for informational purposes only and should not be construed as providing legal advice.