Would You Insure This House?

    Unfit for Human Occupation

Anyone who has applied for insurance on a house or commercial building knows that the insurance agent will want to complete a questionnaire disclosing detailed information about the condition of the building.  If the insured gives false information, the insurer can revoke coverage for misrepresentation.  A lot of people are probably unaware that they have an ongoing legal obligation to inform their insurance company of any significant change in the condition of the insured property, and that the insurer can deny a claim because of failure to report a "material change in the risk".

 

The source of this obligation is a statutory condition that is incorporated into most property insurance policies in Canada: "The insured must promptly give notice in writing to the insurer or its agent of a change that is material to the risk and within the control and knowledge of the insured."  Matters that might be considered material include changes in use or occupation, major renovations, or alterations to electrical, heating, alarms, or other important building systems.

 

Insurance underwriters often dispatch an inspector to look at the home or building before issuing the policy.  The inspector may or may not have any particular qualifications in engineering or construction.  The fee paid for the inspection is small, and the inspections are often cursory.  With home insurance policies, the inspector generally does not enter the house, and the review carried out is often referred to as a "drive-by" inspection as the inspector does little more than visit the location to confirm that there is a building with no obvious pre-existing damage.

 

What happens if the inspector is in a position to note a condition about the building that is material to the risk, but that the insured has not disclosed to the insurance company? The insured could argue that the insurance company had knowledge of the state of the building, so the statutory condition doesn't apply.  The same argument might be raised in the face of a misrepresentation defence.

From the insurance company point of view, the inspection is for a very limited purpose and is not intended to confirm every detail in the insurance application.  Carrying out a thorough inspection would increase underwriting costs, which would have to be passed on to the insured through higher premiums.  The insured is in the best position to provide information about the property, and insurers should be able to rely on information in the insurance application without further inquiry.

 

In Mah v. Wawanesa Mutual Insurance Company, however, a majority of the Alberta Court of Appeal was prepared to impute the knowledge of the inspector to the insurance company.

 

The insured bought a run-down house from his brother.  The house had been insured by Wawanesa, and the brokerage representing Wawanesa took an application from the new owner and agreed to bind coverage pending acceptance of the application by the insurer.

 

The insurance company knew that the building was unoccupied.  Between the date of the new owner's application and the date the policy was issued, however, an official with the regional health authority attended at the property and posted a notice on the rear door stating that the house was unfit for human occupation.  The notice was on bright orange paper, and the trial judge concluded that the owner must have seen it when he came by the house to cut the grass and take away the trash.  The owner did not report the health department's order to the insurer.

 

The insurer asked the broker to check on the type of heating system and age of the house, and to provide a photo "to confirm the dwelling's continued existence".  The broker sent a retired surveyor to conduct an inspection.  For $100, the surveyor attended at the property, carried out a "walk-around inspection", and took several pictures.  He did not enter the building.  He submitted his photos to the broker, along with a one-page handwritten report describing what he had seen.  The broker passed this note and the photos on to  Wawanesa's underwriting department.  One of the photos showed the back door; the orange notice was visible, but the print was not readable.

 

Wawanesa issued the policy, but denied coverage when the property was damaged by fire, citing the failure of the insured to report the health authority's order declaring the house unfit.  The surveyor was not called to testify at trial, so it is not known whether he actually read the health department notice or not.  The trial judge dismissed the action, and the insured appealed.

The fact that the insurance company did not have actual knowledge of the health department order was not in dispute.  The case turned on what the surveyor knew, and whether or not that knowledge could be attributed to the insurer.

The reasons of the trial judge were a little vague regarding the state of mind of the surveyor.  The judge said that "one could assume" that the surveyor saw the health department notice, then took note of the fact that he did not testify.  This suggests that the judge drew an adverse inference from Wawanesa's failure to call the surveyor.  The judge had concluded that the owner must have seen the notice on one of his visits to the property.  The majority in the Court of Appeal said that on the same basis, the judge's assumption about the surveyor's knowledge amounted to a fact finding that the surveyor saw the notice too.

According to the majority, the surveyor was an agent of the broker, and since the broker was an agent of the insurer, the surveyor was "the insurer's agent's agent".  In law, the surveyor's knowledge was the broker's knowledge, and the knowledge of the broker must be imputed to its principal Wawanesa.

In addition, the statutory condition requires notice to the insurer "or its agent".  In the view of the majority, the notice need not come from the insured, and the health authority was actually a better source of information about the fitness of the building.  Since the surveyor/agent had notice, the condition was satisfied and the insurer could not avoid coverage.

Justice O'Ferrall, in his dissent, did not take issue with the idea that the surveyor's knowledge could be imputed to the insurer, or that notice to the surveyor would satisfy the statutory condition.  He did not accept that the trial judge had drawn a factual inference regarding the surveyor's knowledge, and felt that the evidence did not support the conclusion that the surveyor must have seen the health department order.

For homeowner's policies, the costs involved in carrying out a detailed inspection cannot be justified as a routine part of the underwriting process.  Nevertheless, it appears that anything visible from outside the home will be considered within the knowledge of an insurer who orders a "drive-by" inspection prior to issuing a policy.  Certainly, any plaintiff's lawyer faced with a misrepresentation or non-disclosure defence will want to obtain production of the insurer's inspection report.

Mah v. Wawanesa Mutual Insurance Company, 2013 ABCA 363


Contact Richard Hayles at Billington Barristers:

(403) 930-4106

RHayles@BillingtonBarristers.com

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Any legal information provided is general in nature and may not apply to particular situations. It does not constitute legal opinion or advice. Please consult your lawyer regarding your specific legal issue.

Insurance for Flood Damage to Your Home

    Pumping flood water back into the river

Standard homeowner's policies issued by Canadian insurance companies contain an exclusion for damage caused by flood.  Here is a typical flood damage exclusion:

"This policy does not insure … loss or damage caused directly or indirectly by flood, and the word "flood" means waves, tides, tidal waves, and the rising of, the breaking out or the overflow of, any body of water, whether natural or man-made…"

The exclusion clause is carefully drafted so as to provide the insurance company with the widest possible protection against this type of claim.

The language employed is quite comprehensive.  Damage arising "directly or indirectly" from flood is excluded from coverage, and the word "flood" is defined broadly so as to include things that people would not normally think of as flooding, such as tides and waves.  Flooding from any body of water, including man-made sources such as reservoirs, is excluded.

Courts in a number of Canadian provinces have upheld this form of exclusion clause.  In Catalano v. Canadian Northern Shield Insurance Company, 2000 BCCA 133, municipal workers diverted water from overflowing culverts so that it inundated the plaintiff's business.  The B.C. Court of Appeal held that the diversion was not a separate intervening cause of the damage, and that since the original source of the water was overflow arising from heavy rainfall and melting snow pack, the loss came within the policy definition of "flood" and was excluded.

In the recent emergency in Alberta, work crews in certain locations have erected berms and other barriers to divert overflow from rivers.  Although these actions are intended to protect residential areas from flooding, some property owners have probably found that the diverted water increased the flow over their land.  Assuming that the Alberta courts adopt the B.C. interpretation, the ensuing flood damage would be excluded under the typical home insurance policy.

In an Alberta case, the Court of Queen's Bench also accepted the insurer's interpretation of this clause.  In MacNichol v. Insurance Unlimited (Calgary) Ltd., 1992 CanLII 6185 rising water in the Peace River breached a dam, causing blocks of ice to go over the dam and crash into a pump-house that was under construction.  Although the immediate cause of the damage to the pump-house was the action of the ice blocks pounding against it, the court concluded that the direct cause was the rise and overflow of the river, which triggered the exclusion clause.

In another B.C. case, however, the Court of Appeal adopted an interpretation more favourable to the insured.  In B.C. Ferry Corp. v. Commonwealth Insurance Co. (1987), 40 D.L.R.(4th)  766, the insured owned a ferry terminal which was damaged by heavy waves during a severe storm.  Since the evidence showed no abnormal rise in the water levels, however, the appellate court concluded that the event did not come within the extended definition of "flood" in the policy, which encompasses waves, tides, and tidal waves.  Although it was wave action that damaged the terminal, there was no rising of, breaking out, or overflow of any  body of water - the flood exclusion did not apply.

Although the Insurance Bureau of Canada has said that there is no coverage for "overland flooding" in Canadian home insurance policies, there is an alternative point of view.  If the original source of the water is overflow from a river, the damage comes within the standard flood exclusion and is not covered.  The exclusion does not use the word "overland", however, so the wording does not extend to any water that enters a home from outside regardless of the source.

There has been heavy rainfall in many areas of the province over the last week, and water that seeps or leaks into a home due to excess precipitation, and that does not originate in an overflowing river, stream, or reservoir, would not trigger the flood exclusion.  Such water damage would come within the coverage provided in an "all risks" policy, and would likely be covered as "storm" damage in a specified perils policy.

Here are some other kinds of losses that might be covered, even if the home policy contains a standard flood exclusion:

• Sewer backup - many home insurers provide sewer backup coverage as an add on for an extra premium.  If your home policy has a sewer backup endorsement, you are covered where waste water from storm or sanitary sewers has entered the basement through floor drains, tubs, shower stalls, or toilets.  You may also have coverage where some of the water entering your home is backup from sewers and some is overland flow from river flooding.
• Electrical disruption - electrical failure or interruption that is not caused by flood damage could be covered.  It seems that municipal authorities decided to cut power to certain areas once an evacuation order had been issued.  The spoiled contents of a fridge or freezer could be covered in this situation.  If the power loss was due to flood damage to a transformer, however, it would likely come within the flood exclusion.  The contrary argument is that the authorities cut power as a precautionary measure in areas that might be flooded, so the power disruption is analogous to the water diversion in the Catalano case.
• Evacuation costs - if you were evacuated, but your property was not in fact flooded, it is arguable that your accommodation costs such as hotel, restaurants, and parking could be covered.  Such losses would likely not be covered under a specified perils policy, but they should fall within the coverage of an all risks policy in the absence of an exclusion for government orders or actions.  Losses due to electrical disruption could be covered under the same argument.
• Theft, vandalism, arson - whether your property was flooded or not, damage caused by third parties while you were ordered to evacuate and unable to protect your home should be covered.
• Vehicle damage - cars are insured separately, and flood damage to a vehicle should be paid if the insured purchased comprehensive coverage.

All of the above applies to insurance for residential premises.  Business insurance is in an entirely different category.

Although standard business policies contain a flood exclusion similar to the one in home policies, business owners can purchase flood coverage for an extra premium.  This option is not available to home owners.

Even if a business policy does not have a flood endorsement, the flood exclusion often contains language stating that the exclusion does not apply to "resulting damage".  Under this exclusion to the exclusion, direct flood damage is not covered, but if building systems such as fire alarm and suppression, refrigeration, or security are damaged by flood waters, and then there is additional damage caused by the failure of one of those systems, this is "resulting damage" and it is covered.  An example might be the loss of the contents of an industrial freezer to spoilage where water shorts out electrical systems, causing the freezer to shut down.

If you are a business owner you should look at the specific terms of your policy and consult your broker, public adjuster, or legal counsel for assistance in determining what is and is not covered.

Contact Richard Hayles at Billington Barristers:

(403) 930-4106

RHayles@BillingtonBarristers.com

Visit our website: http://billingtonbarristers.com/index.php?id=59

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Any legal information provided is general in nature and may not apply to particular situations. It does not constitute legal opinion or advice. Please consult your lawyer regarding your specific legal issue.

How To Make a Home or Business Insurance Claim

    Bow River Near Prince's Island, June 21, 2013

Early yesterday morning my wife and I were evacuated from our home along with thousands of other Calgary residents. My office is closed after the City issued an order for the controlled evacuation of the downtown area.

Although people living near the Elbow River are starting to return home this morning, it looks like the evacuation order for areas along the Bow River will remain in place for the time being. Power may not be restored in downtown for a few days, so many offices and businesses will remain closed.

Watching Global TV yesterday we saw incredible scenes of devastation, with many residential streets  covered in water. There was muddy water flowing around numerous warehouses and commercial buildings, as well as trucks and other vehicles half submerged.

Thousands of Alberta homeowners and tenants will be looking to their insurers to cover the damage to their houses, gardens, and possessions. Many business owners will have claims for property damage and business interruption. Insurance company claims departments will be inundated with new claims, and it will be difficult for people to get answers to their questions about what is covered, how to document a claim, and how much (if anything) the insurance company will pay.

The most important thing right now is to give your insurer written notice of your claim right away. Delay in giving notice won't just delay the resolution of your claim; it can provide grounds to deny the claim altogether. The insurance company has the right to inspect the damage as soon as possible (even if it doesn't have enough adjusters available to handle all the claims right now).

Send your notice by fax or email, as these methods provide a record of the date and time notice was received.

The initial notice should be short and sweet. You don't need to provide any details about what happened or what was damaged - that can come later. All you need to do is provide the name of the insured, the policy number, and the address of the insured premises. For date of loss, you should say "June 21, 2013 and continuing", as the damage may be ongoing.

Avoid using terms like "flood" or "water damage", as flooding from water sources outside the building is excluded from many policies. At this point, all you need to do is provide notice of a "loss" or "property damage" at the insured address.

If you know that your property is in an affected area but you can't inspect the damage because an evacuation order is still in place, you should send notice of claim anyway. It is very important to provide notice as soon as possible, and you don't need to state any details or estimate the amount of your claim yet.

The Insurance Bureau of Canada has stated publicly that there is no insurance coverage for "overland flooding" in Canada. This may or may not apply to your claim - coverage always depends on the wording of the policy, and insurance policies are subject to interpretation. Legal principles of interpretation generally favour the insured. You should not give up on a potentially substantial claim based on a general statement from an insurance industry organisation that may not apply to your policy and your situation.

Many policies do include coverage for back up from storm or sanitary sewers. If water entered your home from floor drains, showers, tubs, or toilets, at least part of the damage could be covered.

There may be other provisions in your policy that bring parts of the damage into coverage, even if your insurer is telling you it is excluded. You should still send the insurer notice of claim, photograph the damage thoroughly, and keep all your receipts.

Contact Richard Hayles at Billington Barristers:

(403) 930-4106

RHayles@BillingtonBarristers.com

Visit our website: http://billingtonbarristers.com/index.php?id=59

View my profile on LinkedIn: http://www.linkedin.com/profile/view?id=50396098&trk=nav_responsive_tab_profile




Any legal information provided is general in nature and may not apply to particular situations. It does not constitute legal opinion or advice. Please consult your lawyer regarding your specific legal issue.