Appellate Court Allows Oil Spill Subrogation Against Tank Manufacturer

In December 1998, James and Deborah Spillane had an oil tank installed at their property in Islip, Long Island. Less than four years later, they smelled an odor emanating from the tank and discovered the tank was leaking oil into the soil and ground water. The Spillanes filed a claim under their General Casualty Insurance Company homeowner’s policy. General Casualty paid and brought a subrogation action against the manufacturer of the oil tank, alleging that the oil spill was due solely to a defect in the tank. The tank manufacturer moved to dismiss the lawsuit. The trial court denied Defendant manufacturer’s motion to dismiss. The Appellate Court affirmed this decision, and allowed the lawsuit to go forward [1].

New York’s Navigation Law section 181(1) imposes strict liability upon any “discharger” of petroleum (i.e., oil, gasoline or kerosene). The law defines “discharger” as “[a]ny person who has discharged petroleum” regardless of fault. Owners of property on which a discharge occurred may be held liable as “dischargers” even if they did not do anything to cause the discharge. In most cases, if you have an oil tank on your property and it leaks, the State holds you responsible. An “innocent discharger” (i.e., such as the owner of property) who cleans up petroleum may bring a lawsuit to recoup the cost of cleanup against one who “actually caused or contributed to the discharge.” However, in order to bring a cost recovery action under the Navigation Law, you must be “innocent” – i.e., without fault. If a property owner in any way caused or contributed to the happening of an oil spill, the property owner (or its subrogating carrier) cannot use the Navigation Law to pursue cost recovery from a guilty “discharger.”

In this action, General Casualty stepped into the shoes of its insureds, the Spillanes.Reading the complaint liberally, the Court found that General Casualty alleges the Spillanes were faultless property owners and that the sole fault for the discharge was the defective oil tank manufactured by the Defendant. The Court ruled it was not impossible for Plaintiff to be able to prove a case under the Navigation Law and allowed the lawsuit to proceed. The Court also found the complaint alleged a viable cause of action for common-law indemnification.

Bottom Line: A homeowner or commercial policy may require the carrier to pay for the clean up a petroleum discharge. However, where the oil discharge was not caused by any “fault” by the insured, the carrier may be able to subrogate and pursue the party that “actually caused the discharge” under New York’s Navigation Law.

[1]  General Casualty v. Kerr Heating, 2008 N.Y. App. Div. LEXIS 1274 (2nd Dept 2/13/08)

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