Excluded DEEPWATER HORIZON Claims Under Traditional Homeowners’ Policies
August, 2010
The DEEPWATER HORIZON blowout has led to the spill of millions of gallons of crude oil into the Gulf of Mexico. To date, oil from the spill has reached the shores of Louisiana, Alabama, Texas, Mississippi and Florida. Each of these states has residential homes located on the Gulf shore that will inevitably be affected by oil reaching the shoreline. Since claims related to the oil contamination of the shoreline and perhaps other property may be made, we will analyze some of the reasons these claims are excluded under the standard ISO forms. Other exclusions or reasons that coverage does not apply may exist.1
The threshold issue insurers will face in adjusting homeowner claims related to the oil spill will be determining the proximate cause or causes of the loss in relation to the policy exclusions and how the respective state courts treat the issue of causation. The determination of the proximate cause or causes, in comparison to the homeowner policy language and the law of the state of the loss will be important, if not determinative, factors in the analysis of a claim.
The courts of Louisiana, Alabama and Mississippi use the efficient proximate cause rule, which looks to the cause that set all other causes in motion. Although, the courts of Florida and Texas apply versions of the concurrent causation rule, homeowner policies often include a general ‘anti-current causation" provision to prohibit coverage when a cause of the loss is excluded under the policy. An example of an ISO form "anti-concurrent causation" provision is as follows:
SECTION I - EXCLUSIONS
A. We do not insure for loss caused directly or indirectly by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any other sequence to the loss. These exclusions apply whether or not the loss event results in widespread damage to a substantial area.2
While some Gulf state courts have upheld "anti-concurrent causation" provisions, a recent decision in Mississippi bears watching as it calls into question the applicability of such clauses. Insurers with "anti-current causation" provisions have a reasonable likelihood of success in upholding the denial of a claim where one of multiple causes is not covered if enforced by the courts. Insurers whose policies do not include "anti-current causation" provisions will need to review the law of the respective state to determine specifically how each state treats the issues of proximate cause and concurrent causation.
Homeowner policies also often include exclusions including for damage due to pollution. The following is an example of an ISO form provision specifically excluding coverage for pollutants:
SECTION I - PERILS INSURED AGAINST
A. Coverage A - Dwelling and Coverage B - Other Structures
1. We insure against risk of direct physical loss to property described in Coverages A and B.
2. We do not insure, however, for loss:
* * *
c. Caused by:
* * *
(6) Any of the following:
* * *
(e) Discharge, dispersal, seepage, migration, release or escape of
pollutants unless the discharge, dispersal, seepage, migration, release or escape is itself caused by a Peril Insured Against named under Coverage C.
Pollutant means any solid, liquid, gaseous, or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.3
In the event that coverage is not precluded by an excluded peril such as pollution, insurers will next need to determine whether losses from the oil spill amount to a direct physical loss to covered property. As with any claim under a first-party property insurance policy, the insured must demonstrate a direct physical loss or damage to covered property during the policy period from a covered peril or insured event.
Homeowners may try to claim damage to property such as watercraft, docks, piers and lifts that came into direct contact with oil contained in the ocean water. However, many homeowner policies contain sublimits for coverage of watercraft claims and provisions that decline coverage for property separately insured. Thus, insurers should review the policy in detail to determine whether the policy specifically excludes or limits such losses and also determine whether the insured has separate coverage for watercraft and related equipment. The following ISO form policy provisions are examples of language that may be relevant to such claims:
SECTION I - PROPERTY COVERAGES
B. Coverage B - Other Structures
1. We cover other structures on the "residence premises" set apart from the dwelling by clear space. This includes structures connected to the dwelling by only a fence, utility line or similar connection.
* * *
3. Special Limits of Liability
The special limit for each category shown below is the total limit for each loss for all property in that category. These special limits do not increase the Coverage C limit of liability.c. $1,500 on watercraft of all types, including their trailers, furnishings, equipment and outboard engines or motors.
* * *
4. Property Not Covered
We do not cover:
a. Articles separately described and specifically insured, regardless of the limit for which they are insured, in this or other insurance;4
In addition, any claims for the cleaning of oil and repairs to land and landscaping as a result of oil contamination should be analyzed under the following ISO form policy language relevant to land, landscaping and debris removal:
SECTION I - PROPERTY COVERAGES
A. Coverage A - Dwelling
2. We do not cover land, including land on which the dwelling is located.
* * *
B. Coverage B - Other Structures
2. We do not cover:
a. Land, including land on which the other structures are located;
* * *
E. Additional Coverages
1. Debris Removal
a. We will pay your reasonable expense for removal of:
(1) Debris of covered property if a Peril Insured Against that applies to the damaged property causes the loss;
* * *
3. Trees, Shrubs And Other Plants
We cover trees, shrubs, plants or lawns, on the "residence premises", for loss caused by the following Perils Insured Against:
a. Fire or Lightening;
b. Explosion;
c. Riot or Civil Commotion;
d. Aircraft;
e. Vehicles not owned or operated by a resident of the "residence premises";
f. Vandalism or Malicious Mischief; or
g. Theft.5
It is possible that oil may contaminate the groundwater or a property or may even contaminate city sewer systems; further, oil smell may affect the use of the property and/or be a health hazard. The viability of such claims will again depend on the specific policy language regarding pollution and whether the proximate cause or causes are covered perils. Moreover, insurers will need to determine whether the contamination of sewer systems and the smell of oil in the Gulf is a direct physical loss or damage property. An ISO form defines "property damage" as "injury to, destruction of, or loss of use of tangible property."6
An insured may also seek to recover the loss of use, rent and alternative living expenses related to the oil spill which should be analyzed under the following ISO form provisions:
D. Coverage D - Loss of Use
The limit of liability for Coverage D is the total limit for the coverages in 1. Additional Living Expense, 2. Fair Rental Value and 3. Civil Authority Prohibits Use below.
1. Additional Living Expense
If a loss covered under Section I makes that part of the "residence premises" where you reside not fit to live in, we cover any necessary increase in living expenses incurred by you so that your household can maintain its normal standard of living.
* * *
2. Fair Rental Value
If a loss covered under Section I makes that part of the "residence premises" rented to others or held for rental by you not fit to live in, we cover the fair rental value of such premises less any expenses that do not continue with it is not fit to live in.
* * *
3. Civil Authority Prohibits Use
If civil authority prohibits you from use of the "residence premises" as a result of direct damage to neighboring premises by a Peril Insured Against, we cover the loss as provided in 1. Additional Living Expense and 2. Fair Rental Value above for no more than two weeks.
4. Loss Or Expense Not Covered
We do not cover loss or expense due to cancellation or a lease or agreement.
* * *
E. Additional Coverages
2. Reasonable Repairs
a. We will pay the reasonable cost incurred by you for the necessary measures taken solely to protect covered property that is damaged by a Peril Insured Against from further damage.7
As detailed above, to what extent an insured is entitled to recover for the oil spill claims under a homeowner's policy will depend on the facts of the claim as applied to the specific language of the insurance policy and the law of the state where the loss occurred. There must be threshold coverage analysis as with any claim under a first-party insurance policy. The insured must demonstrate a direct physical loss or damage to covered property during the policy period from a covered peril or insured event not otherwise excluded under the policy.
__________________
1 Manuscript forms for homeowner policies may include additional coverages and exclusions relevant to the DEEPWATER HORIZON oil spill and as mentioned throughout this article, each Policy must be analyzed under the particular facts and law of the applicable jurisdiction.
2 ISO 00 03 10 00
3 Id.
4 Id.
5 Id.
6 ISO 00 03 10 00
7 Id.
Back to CM Special Report on the Gulf Oil Spill (2010) 2010 Summer Table of Contents
