When a young couple
came into my office for what I thought would be a routine
purchase closing last week, they presented me with a problem
that threatened to jeopardize the entire transaction.
As they sat down to
sign all the papers, they told me they couldn't get fire
insurance. Their own agent was unable to arrange coverage, and
even the existing insurance company for the vendors declined to
issue another policy on the same house.
The problem, it
turned out, was the fuel oil tank in the basement. Neither the
vendors nor the purchasers knew how old the tank was and, with
closing only a day away, no insurance company was willing to
provide coverage for a tank of unknown age and condition.
With as many as 7,000
oil tank spills in Canada every year and the tightening of
environmental regulations, insurance companies are becoming
increasingly reluctant to provide coverage for homes unless the
oil tanks are inspected and given a clean bill of health.
Fuel oil heats more
than 1.5 million Canadian homes. Some of the tanks date back to
the 1930s when they replaced coal as a common source of heat.
Most of the tanks, however, were installed during the building
booms of the 1960s and '70s.
Some of them are
starting to develop pinprick holes in the tank walls or leaks in
the fuel lines problems that can go undetected for months or
As the tanks age, the
likelihood of tank deterioration increases, and insurance
companies today are insisting on a thorough inspection before
they provide coverage.
Even fuel oil
companies will not take on new customers unless the tank is
inspected or replaced.
Fortunately for my
young clients, at the last minute they were able to find an
insurance company which wrote a policy based on the new owners'
promise to have the tank inspected and cleaned, or replaced,
within a very short time.
Homeowners with fuel
oil tanks should ensure they have insurance coverage for
environmental damage to their own property.
One unfortunate Nova
Scotia homeowner got a bill for $300,000 to clean up an oil
spill from his 15-year-old outdoor tank. That was just the
amount of damage to his neighbours' property. While the
insurance company paid that bill and the cost of damage to the
house and contents, it did not pay for the cost to clean up the
owner's own backyard, remove the contaminated soil and replace
it with clean soil.
Not all insurance
policies cover cleanup and replacement costs for the actual
earth in, under and around the house.
Bill Hyndman learned this the hard way. When the fuel oil
company was filling his basement oil tank, one of the tank
supports gave way and the tank tipped over.
It took a month and a
half of cleanup efforts before the insurance company told him it
was safe to move back into the house, but an independent
engineering test confirmed that the oil level in, under and
around the house was still 210 times the safe level.
Hyndman bought a
second house to live in so his family's health would not be at
The $180,000 Hyndman
house is now worth maybe $60,000, but the insured cleanup costs
are $900,000 and climbing. Plus, of course, the $300 bill for
the original fuel oil.
regulations require homeowners to have a certified fuel oil
technician service their oil furnace annually and have the tank
inspected by their fuel oil supplier. Fuel oil companies that
find unsafe equipment or leaking tanks are required to stop
delivery until the equipment is fixed.
In light of new fuel
industry standards and insurance underwriting requirements,
purchasers of resale homes with fuel oil tanks should make their
agreements of purchase and sale conditional on an inspection of
the furnace by a certified technician and an inspection of the
fuel tank by a fuel oil supplier.
are available on the Web site of the Technical Standards and
Safety Authority at
Buying a house heated
by fuel oil has just become much more complicated and homebuyers
should exercise caution. Their financial and physical health may
depend on it.