Risk Management Best Practices for oilheat companies
An Insurance Perspective, courtesy of Marsh Canada Limited.
Risk is the threat of an event which affects the ability of an organization to achieve its objectives. By assessing what can go wrong and why, how bad can a loss be, how likely a loss is to happen, and how to deal with loss plan implementation, businesses can make informed decisions on the components that their ideal risk management program should include. Consider the following hypothetical claims scenarios and potential costs:
- A tractor trailer is driven down a road and unable to stop, rear-ending another trailer - $90,000
- A tank truck is struck by a third party vehicle, resulting in damage to the tank - $12,000
- A house is unoccupied during renovations and the pipes freeze due to non-delivery of oil - $15,000
- Oil is spilled while loading - $190,000
- A strong oil smell results in a basement, due to a tank being moved and hooked-up - $45,000
- A driver error results in wrong house filled - $75,000
- A homeowner moves a tank after it was insured and inspected, resulting in a leak - $5,000
- After a site is inspected, a tank leaks oil under a house’s foundation, with possible leakage into water supply - $250,000
- An underground storage tank leaks, then migrates to neighbouring sewer system - $50,000.
Obviously, these mistakes can be costly, so it is essential to have coverages in place tailored to the specific risk needs of oil heating businesses. Let’s examine the various types of insurance available to oil heating businesses, and some scenarios under which these coverages may be required.
Contractors’ Pollution Liability covers bodily injury or property damage as a result of a pollution event during the installation and maintenance of furnace/tank/HVAC or leased (skid) tanks. This coverage could apply in the following situations:
- A serviceman repairs equipment and two days later repairs fail resulting in a leak.
- A truck driver fills tank in the morning, homeowner returns home to find a leak emptied in basement. Tank maintained by your employee.
- The insured installs skid tank at third party site. Skid falls over resulting in pollution loss due to faulty install.
- A tank installed at homeowner site. Tank leaks and reported to homeowners insurance only. Cause of leak is faulty install. You are notified 13 months later.
Pollution Liability for bulk storage tanks on listed sites covers on-site cleanup, as well as third party liability. This coverage could apply in the following situations:
- A property owner complains of gasoline odours emanating from a storm sewer leading from an adjacent service station which has a number of underground storage tanks. After investigation, leak detection retention records indicate that one of the tanks was leaking several hundred litres of gasoline.
- A spill from an exterior, above-ground storage tank (owned by you) releases 4,000 litres of heating fuel into the environment, impacting surface, soils, bedrock, and groundwater resulting from ice falling from an adjacent roof onto and breaking the fuel supply line.
- You discover a leak in an underground storage tank that contaminates soil and groundwater both on your site and neighbouring third party owner.
Commercial General Liability covers bodily injury and property damage to third parties as a result of negligence. This coverage could apply in the following situations:
- At a residential home to which you regularly deliver, the homeowner decides to fix his own equipment. The equipment fails, resulting in a leak.
- A homeowner trips over a hose or other equipment left unattended and suffers a bodily injury.
- An explosion occurs in a furnace after a service call, causing damage to a home and the death of the homeowner.
- Damage is done to a homeowner’s property after a service call (e.g. oil on carpet or damage to landscaping).
Automobile covers bodily injury and property damage to a third party. This coverage could apply in the following situations:
- A valve releases while a vehicle is parked and unattended, causing pollution.
- A tanker rolls over, causing spillage and pollution.
- A vehicle rear-ends a third party, causing bodily injury.
- A tanker backs into a homeowner’s garage, causing property damage.
- A tanker loses control due to black ice, resulting in damage to the tanker and injuries sustained by the driver.
Determining the right risk coverages for your oil heating business can be a daunting task, even in the best of times. Due diligence in examining and assessing the options is key. You should review this checklist in choosing your next insurance policy:
- If you service and do installation, how will your Contractors’ Pollution Liability policy cover you?
- If service work is performed by third party contractor(s), you need to ensure they have the following minimum insurance (and obtain evidence of insurance): General Liability for a limit of $2 million; and Contractors Pollution Liability.
- If you own storage tanks, do you have coverage and what is the deductible? Are defence costs over and above the limit?
- Is loading and unloading pollution exposure covered? Under what policy? What is the deductible? Does it include or exclude expenses?
- What is the reporting period to your insurer after a spill (e.g. 120 hours)?
- Is the policy covering sudden and accidental or gradual pollution?
- Have you transferred liability to a third party, where applicable?
In the unfortunate circumstance of a loss, retaining a trusted risk advisor with expertise and resources in claims and litigation management can be crucial. Consider the following questions when selecting who manages your risk:
- Is there an advocate engaged on your behalf in spill response incidents? Report and document everything. Be proactive. Communicate with the customer.
- Is there strong legal representation to fight claims? Document and do not destroy evidence. Promote ongoing training.
- What are your contractual obligations with third parties? Service contractors? Customers?
Marsh Canada Limited is the official broker of the COHA Ontario Risk Management Insurance Program. If you would like further information about risk management for oil heating companies or have questions about the COHA insurance program, please contact Cecilia Bince at 416-394-3504 or email Cecilia.Bince@marsh.com.
The Ontario Chapter Risk Management Insurance Program is the only group program of its kind endorsed or supported by any COHA organization.
The information contained in this article is based on sources we believe reliable, but we do not guarantee its accuracy. This information provides only a general overview of subjects covered; is not intended to be taken as advice regarding any individual situation or as legal, tax, or accounting advice; and should not be relied upon as such. Recipients of this publication should consult their own insurance, legal, and other advisors regarding specific coverage and other issues. The hypothetical case studies contained herein are for illustrative purposes only and should not be relied upon as governing any specific facts or circumstances.