On April 20, 2010, the Deepwater Horizon drilling rig exploded, killing 11 workers and injuring 17 others, and setting off a massive oil spill in the Gulf of Mexico. Oil leaked out at a rate of perhaps 2 million gallons per day, fouling a good portion of the Gulf. Several attempts to stop the leak failed, until finally the wellhead was capped and the leak mostly stopped on July 15, after almost three months.
Most of the damage of the oil spill thus far has been at sea, as it’s devastated marine life and the fishing industry. Where the oil has reached land, it’s mostly been Gulf wetlands and beaches that are not private property.
However, property owners on or near the Gulf Coast are understandably worried that their property could be damaged by the spill if it hasn’t been already. One of the ways this could happen would be if a major storm or hurricane generated enough of a storm surge for oily Gulf waters to wash ashore as far as their property.
What many property owners are scrambling to find out, then, is whether the insurance they have will compensate them for any damage done to their property by the oil.
The answer is not a simple yes or no. It will depend on the precise wording of the property owner’s insurance policy, and how tenaciously the insurance company fights them on any claim. But there are some general factors that can be noted.
If Gulf waters somehow flood buildings themselves, such as in the case of Hurricane Katrina in 2005, flood insurance should cover the damages. If the damages are greater because the flood water is full of oil, then those greater damages would still be covered, since it’s still flood damage. However, the downside is that damage to land other than the actual buildings will typically not be covered by flood insurance. So if you have a beach house on the Gulf, and oil washes over and fouls the beach but doesn’t get into the house, flood insurance would likely not help you.
Standard homeowners insurance is even a little less promising. First, it has the same problem that damage to the land as opposed to damage to the home itself would normally not be covered. But it’s questionable whether even damage to the home would be covered. Homeowners policies typically have provisions for damage from “pollution,” so it could all come down to how exactly the policy is worded on that point, and how it is interpreted. An insurance company could claim that naturally occurring, raw, crude oil that has not been in any way refined or treated is not a “pollutant,” and it wouldn’t be a shock for them to win on that point.
Commercial property owners have another avenue to consider. If they have what’s called “business interruption” coverage, they should be in good position to receive compensation. Aside from whatever physical damage they might sustain to their tangible property, if any, a huge number of businesses-and not just directly on the Gulf-have seen their businesses adversely affected. Business interruption insurance, depending again on the precise wording of the policy, kicks in when-as a result of in this case the Gulf oil spill-a business must shut down temporarily, must shut down permanently, loses a substantial part of its customer base, or has its access to products, services, or it premises substantially impaired.
So if you own property, the answer to whether you will be compensated for your losses stemming from the Gulf oil spill is maybe. It’s certainly worth going through your policies carefully and consulting with your insurance agent, as some policies should cover you while others will not.
Wendy Blair, “Will Home Insurance Absorb Costs of Oil Spill Damage?” Insurance Rate.
Robert M. Horkovich, Marshall Gilinsky, and John G. Nevius, “Insurance Coverage for Gulf Oil Spill Losses.” The National Law Review.
Richard Rainey, “Flood insurance will cover oil damage, but only to buildings.” New Orleans Times Picayune.