Will Home Insurance Absorb Costs of Oil Spill Damage?

Published: Wed 26 May 2010

Wendy Blair

Residents of the Gulf Coast of Florida are waiting and wondering if their homeowners insurance policies will absorb the losses should the gulf oil spill reach and damage their properties.

Floridians are no strangers to the full spectrum of home insurance coverage necessary for the disaster-prone area. The typical Floridian carries federal flood insurance, windstorm protection, hurricane coverage, sinkhole provisions, and more. But the massive BP oil spill was one disaster they never saw coming. Homeowners worry that their existing coverage would not cover oil-related losses.

Insurance attorney Chip Merlin, the president of the Merlin Law Group in Tampa, Florida, happens to agree. He points out that the raw crude oil spilling into the ocean may not qualify as a "pollutant" by the definition established by insurers and thus may not be covered by the standard pollution-cleanup provision in home insurance coverage.

"As a naturally occurring substance that hasn't been refined at all, crude oil itself might not be a pollutant under the policy," Merlin explains. "A lot of the attorneys in my firm say it might not."

The standard homeowner's insurance coverage against explosions may offer some assistance with cleanup if authorities determine that the explosion that sunk the Deepwater Horizon oil rig directly resulted in the spill.

For the most part, unless the oil spill physically damages a resident's home, a standard homeowners insurance policy will not cover any losses.

"Because the property policies don't cover land, the insurance companies are going to argue that there is only damage to the land and we only cover damage to structures," Merlin explains.

Whether Floridians' home insurance policies will absorb oil-spill losses remains to be seen. Mr. Merlin forecasts years of lawsuits as claimants pursue class-action litigation against BP.