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August 14, 2018

Anatomy of a Flood (Avoid These Holes in Your Insurance) Part 1

2 min read


During the summer we don’t often think about major insurance perils like flooding. Sure there are often storms that bring heavy rainfall, but for much of Canada flooding is often thought of as a spring issue.

That’s when snow and ice melt quickly, while accompanying showers create too much water for the drainage systems to handle.

This happened in Mississauga this past winter/spring and caused extensive damage to many homes.

Some of those homes were insured and some were not. Friends of ours, let’s call them Joe and Mary, experienced flood damage but did not have insurance, while other friends, Sam and Betty, did have coverage, but not for what they believed. Unfortunately neither were able to manage their repairs without some financial hardship.

Sam and Betty’s ‘Overland’ Hot Tub Flood

Sam and Betty have always enjoyed relaxing in the hot tub they have owned for many years. However one year they had a small problem when water escaped the hot tub and eventually leaked into a nearby window well along their basement foundation wall. After a big summer storm, Sam called his insurance broker after discovering water in his basement that had seeped in the window, down through the drywall and into the carpet. Needless to say it was a decent sized mess.

The insurance broker called in the claim, and an adjuster came out to inspect the damage. Once he examined the damage, he asked where the water came from and Betty and Sam showed him the hot tub, and how the storm had blown off the cover and blown plenty of water out of the hot tub. The adjuster took notes and told Sam and Betty that he would be in touch. Shortly thereafter Betty and Sam received a letter denying their claim.

There was no denying the damage existed, nor that it was caused by water, so what was the problem? Why was the claim denied? When they called the adjuster to ask why, he explained that the water from the hot tub was deemed to be ‘overland water’ and the damage was therefore not caused by an insured peril. Sam asked if wind damage was covered, and the adjuster replied, ‘yes and any damage to the hot tub, but the high winds would be covered’ less their deductible, but as the water escaped, it was therefore deemed overland water or ‘a flood,’ which was specifically excluded in their policy wordings.

Today, with many insurance companies in Canada offering overland water or ‘flood’ coverage, Sam and Betty understood, as they knew that it was an ‘extra coverage’ or endorsement to their policy that would provide protection from that peril.

Our other friends, Joe and Mary, had never had that experience, so when the waters rose in Mississauga they thought their only worry was from sewer back up. In this case they had a backwater valve and sump pump to protect them, along with $15,000 of extra insurance protection for a ‘sewer backup’ loss.

Joe and Mary’s Basement Flood

Sure enough Mary called Joe one day and said the flood waters had hit their home, and they had one foot of water in their basement. Mary called their insurance broker and told them they had been affected by the rising water and their basement was flooded. Just as with Sam and Betty, an adjuster came out and assessed the damage and the cause. In this case the water had entered through a basement door after traveling down some outside stairs. Again, as with Sam and Betty, the claim was denied. While water was unable to drain down the sewer and Joe assumed this would be covered, the water had not entered the home via the sewer, but was overland water. While the sewer was indeed backed-up it was not the entry point of the water, nor the cause of the damage, and thus the $15,000 coverage that Joe and Mary had purchased was not applicable.

The Devil is in the Details

So why have sewer backup coverage if there are exclusions? Joe and Mary had made the right decision to purchase sewer backup coverage, but it was not applicable because the water entry was not due to the sewer backing up. The bigger picture here is that water damage endorsements are very specific for the coverage. Sewer backup is not called ‘basement water’ or ‘basement flooding’ while overland water is not called ‘flood’ because that would be misleading as to what is actually covered. In part two, the two coverages will be further elaborated on in more detail, showing how they work in tandem for a greater and more complete water protection package.

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