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

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.

Disability Insurance 101 - What Constitutes "Total Disability"?

    Peace Bridge from the north side of the Bow

    River, June 5, 2013 (another sunny day in Calgary!)

Do you have a question about your long-term disability policy? Are you thinking of making a claim, or have you already put in a claim that the insurance company has denied? This post is part of a series explaining the basics of disability insurance coverage and the ins and outs of the claims process.

Disability insurance provides protection for loss of income when an illness or injury prevents the insured from working. With other types of insurance it is usually not difficult to determine whether or not a loss has occurred - in automobile insurance, for instance, it is typically pretty clear that a collision has taken place, and it is rare for an insurance company to question a life insurance claim on the grounds that the insured is only missing and might not actually be dead.

Disability insurance is different because there are degrees of disability.  We have all gone to work with a minor injury or worked through a cold, and we've seen people try to work when everyone is telling them they are too sick and should take time off. At what point is the disabling condition so serious that the insured is no longer able to work, and is entitled to benefits under the disability policy?

The evaluation of a claim is especially difficult in cases where the disabling condition involves chronic pain or fatigue, or where depression, anxiety disorder, or some other psychological condition is a factor. In these cases the insurer has no objective standard for determining the extent of a person's disability, and the insured can't point to a lab test or x-ray to prove that his claim is real.

The majority of disability insurance disputes arise when the insurer denies that the claimant is "Totally Disabled" as this term is defined in the policy. This is also the issue that is most likely to lead to litigation.

There are two common policy definitions of Total Disability, which are often referred to as "Own Occupation" coverage and "Any Occupation" coverage. In an Own Occupation policy, the definition of Total Disability typically says that benefits are payable when the insured is "completely unable to engage in his regular occupation". This type of insurance provides coverage when the claimant can't do his usual job, even if he is capable of performing another type of work for which he is qualified. Own Occupation policies provide a higher level of coverage, usually at a higher premium rate.

Any Occupation coverage contemplates alternative employment. A standard Any Occupation definition provides that the insured is Totally Disabled when he is incapable of performing an occupation "for which he is reasonably fitted by education, training, and experience".

Most long term claimants are covered under employee group policies. These insurance plans usually provide a period of Own Occupation coverage for the first one or two years of disability. At the end of the Own Occupation period the policy definition of Total Disability changes to an Any Occupation definition, and the employee is cut off if she can perform other, suitable work.

The leading case on the definition of Total Disability is Sucharov v. Paul Revere Life Insurance Co., http://www.canlii.org/en/ca/scc/doc/1983/1983canlii168/1983canlii168.html.  The insured in that case was an insurance agent who owned and managed his own brokerage.  He claimed disability based on high blood pressure and an anxiety disorder.  Although he could perform most of the discreet tasks involved in his business, such as making sales calls or updating policy information, the pressure of performing all of these tasks together was too much.

The policy said the insured was Totally Disabled when "completely unable to engage in his regular occupation".  The insurer argued that a claimant who could perform each of the tasks involved in his occupation, albeit separately, was not "completely unable" to perform that occupation.

This literal approach to policy interpretation was rejected by the Supreme Court of Canada, which held that Totally Disability means the substantial inability to perform an occupation.  Under Own Occupation coverage the claimant is disabled if he cannot perform any of the important duties of his job, or if he is unable to perform the work in its totality.

In subsequent cases, courts have held that a claimant is unable to perform "each and every duty" of his occupation if he is substantially disabled from performing essential job duties.  Disability arises when a person who has the physical capacity to perform the tasks making up the job is hindered in his performance by pain, fatigue, or prescribed medication.  Total Disability doesn't require complete helplessness, and benefits are payable if the insured is unable to perform the substantial and material acts that make up his usual work.

This approach to the interpretation of Total Disability is in keeping with the principles that the courts use for the interpretation of any kind of insurance policy: the words in the policy are to be applied in their plain and ordinary sense, as members of the general public would understand them.  Standard form policies will be interpreted against the interests of the insurance company that drafted them, so coverage clauses are to be interpreted broadly in favour of the insured, and exclusion clauses are to be given a narrow reading.

In the next post in this series, I will talk about the interpretation of Any Occupation definitions of Total Disability.

Contact Richard Hayles at Billington Barristers:
(403) 930-4106
RHayles@BillingtonBarristers.com

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

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.