Will Homeowner Insurance Cover Damage from Oil in a Hurricane Tidal Surge

If you’re a homeowner along the Gulf Coast, the story of the April 20, 2010 explosion of the Deepwater Horizon oil platform is far from over. Although the largest oil spill in history has now been stopped by the capping and filling of the well, the oil remains in the ocean and on top of it. Coastline areas from Louisiana to Florida have been soiled and the fate of the marshlands and the marine habitat remains in doubt.  If you’re a homeowner in the area, you may have already lost your livelihood and the way of life you were accustomed to. What happens if a hurricane-driven storm surge brings the oil and dispersant laden water right into your home and property? Will your insurance cover it?

BP’s efforts to get insurance held by the rig operator Transocean to pay for damages have been unsuccessful thus far as 38 Lloyds’s of London underwriting syndicates plus other international insurers have rejected BP’s claim. While all of this insurance claim posturing makes the national news, the homeowner has more immediate worries. Will your own homeowner insurance pay for damage if the worst happens – an oil-laden surge that brings the contamination right into your home?

Television, newspaper, and internet ads are creating a flood of their own from lawyers claiming that they can help homeowners and store owners win claims for property damage, natural resource damage, and loss of earning capacity. “We can help you fight for the money you are owed and get the compensation you deserve,” says an ad from the firm of Colling, Gilbert, Wright & Carter. Such ads assume that homeowner property insurance claims will be denied.  But will they?

Louisiana Insurance Commissioner Jim Donelon has said that regardless of what FEMA flood insurance pays, his office has an opinion:  “It is clear as day to me, that the oil in the water, if it is part of the flooding of an insured building, will be covered by a flood insurance policy,” Donelon said.

It may be time to check the wording of your exact policy. If you have flood damage insurance, you should be covered whether there’s oil in the water or not. What may be up to debate (again depending on your policy) is whether you can be compensated for damage to your land. What if cleaning is necessary to make the land useable? What if your water source is contaminated? What about damage to outbuildings and their contents – perhaps hay that becomes oil soaked or machinery that is damaged? Barn or shed siding that becomes oil soaked?

The good news is that this imagined disaster has not happened yet, and we don’t even know if there will be a hurricane that causes flooding in the Gulf this year.  Now is the time to talk over various scenarios with your insurance agent. Is there a provision that excludes damage from water or air carried toxins? Is your land covered as well as your home? Are there provisions for cleanup as well as losses?  If the answer is no, you can ask if such coverage exists – either from them or other carriers.

If you’re a business owner, there is a better chance of coverage and you may also be in line to receive monies from any BP settlement. In addition to outright compensation, federal and state programs usually offer low-cost clean up and rebuilding loans in a disaster area.  For an idea of what may or may not be available, do some research about some of the recent high damage hurricanes like Katrina, Ivan, Andrew, Camille, Hugo… just to name a few. Internet research can give you an idea of how insurance claims were handled in those catastrophes.

But… bear in mind that a hurricane bearing oil-contaminated water is a new possibility. The tragedy of the Horizon oil rig disaster is one that has brought imagined consequences into our thoughts. Do your homework. Find out what your policy covers and increase it if possible. If a hurricane is approaching, move as much as you can out of harm’s way. Protect items in barns and sheds with waterproof sealed coverings. Be in community with your neighbors and local officials to best utilize resources at hand. And, pray that this disaster never happens.