New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

The Office of General Counsel issued the following informal opinion on October 22, 2001, representing the position of the New York State Insurance Department.

Re: Homeowners Insurance Policy and Pollution Exclusion

Question Presented:

Must a homeowners insurance policy provide pollution coverage for discharge of oil from a homeowner’s above-ground or underground oil tank resulting in damage to the insured’s own property?

Conclusion:

The New York Insurance Law does not require a homeowners insurance policy to provide pollution coverage, whether such coverage arises from discharge of oil from a home owner’s above-ground or underground oil tank or otherwise, for damage to the insured’s own property.

Facts:

A contractor that decommissions above-ground and underground oil tanks stated that in its experience some homeowners insurance policies provide coverage for oil tank leakage, but some do not. The contractor inquired as to whether a homeowners insurance policy must provide coverage for the leakage of oil into the environment, whether the insured is a home owner or condominium owner.

Analysis:

The New York Insurance Law does not define "homeowners insurance" except for limited purposes. See N.Y. Ins. Law § 2351(a) (approving multi-tier programs), N.Y. Ins. Law § 3425(o) (regarding material reduction of the volume of policies written), and N.Y. Comp. Codes R. & Regs. tit. 11, § 19.1(a) (1997) (Regulation 154) (promulgated in furtherance of N.Y. Ins. Law § 3425(o)).

N.Y. Ins. Law § 2351(a) states:

For the purposes of this section, "homeowners insurance" means a contract of insurance insuring against the contingencies described in subparagraphs (A), (B) and (C), or (B) and (C) of paragraph two of subsection (a) of section three thousand four hundred twenty-five of this chapter and which is a "covered policy" of personal lines insurance as defined in such paragraph; provided, however, that the coverages provided under such subparagraphs (B) and (C) shall not apply where the natural person does not have an insurable interest in the real property, or a portion thereof, or the residential unit in which such person resides.

N.Y. Ins. Law § 3425(a)(2)(A), (B) and (C) (McKinney 2000) state:

(A) loss of or damage to real property used predominantly for residential purposes and which consists of not more than four dwelling units, other than hotels and motels;

(B) loss of or damage to personal property in which natural persons have an insurable interest, except personal property used in the conduct of a business; and

(C) other liabilities for loss of, damage to, or injury to persons or property, not arising from the conduct of a business, when a natural person is the named insured under the policy.

As a practical matter, the Department recognizes "homeowners insurance" as, and essentially uses that term to describe, the type of policy that provides insurance as defined in §2351(a) for general purposes, and not strictly for the limited purposes for which "homeowners insurance" is defined in the Insurance Law.

An insured under a homeowners insurance policy may be a home owner, a condominium unit owner, or a cooperative unit shareholder-tenant. There are six basic types of homeowners insurance policy forms that are currently in use in New York. The forms most commonly used by insurers are those that have been developed by Insurance Services Office, Inc. ("ISO"), a supplier of insurance services for the property/casualty insurance industry.

The standard form for homeowners insurance in use today is the ISO HO-3 form. The ISO HO-6 form is the standard form for condominium unit owners and shareholder-tenants of cooperative units. The ISO HO-3 form insures real property on an all-risk basis, subject to policy exclusions, and personal property on a named-perils basis. The ISO HO-6 form insures both real and personal property on a named-perils basis.

The ISO HO-3 form excludes pollution coverage claims made by the insured regarding the insured’s own dwellings and other structures unless the discharge, dispersal, seepage, migration, release or escape of pollutants is caused by a named peril under Coverage C of the form. Because personal property is covered on a named-perils basis in the ISO HO-3 form, and both the dwelling (residential unit) and personal property are covered on a named-perils basis in the ISO HO-6 form, any pollution claim made by the insured regarding such insured’s own property due to the discharge of oil from a home owner’s above-ground or underground oil tank would be covered only if damage was caused by one of the named perils.

While the ISO homeowners insurance policy forms are the most widely used forms, not all insurers use them; such insurers’ forms are designed by the insurers themselves. This may account for the contractor’s experience that some homeowners insurance policies provide coverage for oil tank leakage while some do not.

For further information you may contact Senior Attorney Sally Geisel at the New York City Office.