Canadian Underwriter

Subrogated claim confirms obligations of homeowners using heating oil

September 6, 2019   by Greg Meckbach

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If your client’s home is heated by oil supplied from an outdoor tank, do they need to conduct annual maintenance?

This question came up in a recent subrogated home insurance claim. A Court of Appeal for Ontario ruling released this past Wednesday means if your clients are not taking some action with regard to their oil tank, they cannot put all the blame on the corporations providing fuel supply and services.

Sheila Donleavy and Kenneth Edwards bought an oil-heated home in Rideau Ferry, about 100 km southwest of Ottawa, in 2002. The 900-litre outdoor oil tank leaked in 2008. That tank was labelled for indoor use only. Expert witnesses in the lawsuit attributed corrosion from the inside due to water as causing the tank to leak.

That lawsuit was a subrogated claim – essentially the home insurer suing oil companies, in the client’s name, in court.

As a result of a 10-day trial in 2016, Justice Sylvia Corthorn of the Ontario Superior Court of Justice found Ultramar Ltd. was 60% liable for the fuel spill. Damages were nearly $800,000, of which $375,000 was the insurer’s interest.

From 2002 through 2004, Ultramar had a contract with Kilpatrick whereby Kilpatrick would provide burner services. As part of that contract, Kilpatrick did a pre-delivery inspection of the fuel tank in 2002. The inspection report failed to indicate that the outdoor tank was labelled for indoor use only. Justice Corthorn ruled that although Ultramar was 60% liable it was entitled to recover half of that from Kilpatrick.

The 2017 ruling was upheld by the Court of Appeal for Ontario in its decision released Sept 4, 2019. All parties had appealed the trial judge’s ruling, with several different issues reviewed by the three judges hearing the case.

In its unanimous ruling, the appeal court agreed Justice Corthorn made some errors (for example, stating she would rely on the “material contribution” test but actually applying the “but for” test) but those did not change the outcome due to the facts of the case.

One issue the parties challenged was apportionment of liability.

“Despite the heavy onus on individuals and corporations working within the fuel oil industry, Mrs. Donleavy and Mr. Edwards were not entitled to sit back and do absolutely nothing towards the maintenance of their fuel oil-burning heating system,” Justice Corthorn wrote in 2017, explaining why the homeowners were 40% liable.

On cross-appeal, the homeowners argued Justice Corthorn was mistaken in ruling they were required to conduct annual maintenance on the fuel tank when this was not brought to their attention by the distributor.

But the Court of Appeal for Ontario upheld that finding.

An Ontario regulation from 2007 requires owners of some metallic outdoor oil tanks to conduct a dip test and to remove any water found in the tank, Justice Katherine van Rensburg of the Court of Appeal for Ontario wrote.

“As persons who had previously owned homes with fuel oil-burning heating systems, they ought reasonably to have developed an appreciation for the importance of regular maintenance of the system,” wrote Justice van Rensburg.

The subrogated claim centred mainly around the obligations that Ontario regulations – including the Technical Standards and Safety Act – place on homeowners and fuel providers.

For example, when an oil tank is not compliant with regulations, it must be tagged. But the oil tank was not tagged after it was inspected in 2002, despite the fact that it was an indoor tank that was installed outdoors.

One reason Ultramar is partly liable is Ontario rules require that the external condition of a fuel tank be “visually inspected an accepted by the fuel oil distributor.” Ultramar’s own evidence was that it would not deliver oil knowing that an outdoor fuel tank was labelled for indoor use only, Justice van Rensburg noted.

Ultramar argued – without success –  that the duty of inspection was entirely that of the homeowners, as part of the annual maintenance that the owners of the tank were required to perform.


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