April 8, 2020 by Greg Meckbach, Associate Editor
Property insurers in Montreal, Que., could exclude ‘fire following earthquake’ from home insurance policies, making such coverage part of an earthquake package, but many have not elected to do so.
The result is that property insurers in Quebec may be on the hook for billions of dollars worth of fire damage on their home insurance policies as a result of an earthquake.
Fire following earthquake is an issue for insurers covering property in Montreal, wrote Charles Scawthorn, president of SPA Risk LLC, in a report released last year by the Institute for Catastrophic Loss Reduction (ICLR).
The ICLR report modelled fire losses for three different scenarios in which an earthquake measuring around 6.5 to 7 on the Richter scale has its epicentre in or near Montreal. In one scenario, fire following earthquake losses approached $30 billion. Actual losses are likely (but not certain) to be much lower, Scawthorn said during a panel discussion at CatIQ Connect in February in Toronto.
Home insurance policies are not standard across the Canadian industry and each insurer’s policy has its own nuances, said Ari Krajden, a partner with litigation law firm Kawaguchi Krajden LLP.
Chet Wydrzynski, partner with insurance defence firm Dolden Wallace Folick, reviewed four home insurance policies from his files. Of those four, three had different policy wordings regarding fire following earthquake.
Within the earthquake exclusion of one of the policies Wydrzynski reviewed, there is an exception to the exclusion for ensuing loss or damage that results from fire, explosion or smoke.
“The wordings themselves are varied,” Wydrzynski said. “However, it does tend to be pretty clear for the most part on a typical homeowner’s policy [that a] loss like that would be covered.” He added that insurers could write a policy that does exclude fire following earthquake if they wanted to. For example, a type of loss could be excluded if there are other concurrent causes.
And so how do Quebec insurers handle fire following earthquake? This question was put to 90 insurers (representing 97% of the province’s personal property market) in a 2018 survey by Autorite des Marches Financiers (AMF), Quebec’s financial industry regulator.
Some automatically include fire following earthquake, AMF senior director Nathalie Sirois said during CatIQ Connect. Some add an endorsement without any additional premium, while others charge a premium for such an endorsement. AMF survey results indicate that nearly 10% of locations in Quebec are not covered for fire following an earthquake.
Huge conflagrations affecting multiple properties can follow earthquake for several reasons, including electrical shorts, gas releases, falling candles, and industrial processes, Scawthorn said at CatIQ Connect. Also, there can be a delay in reporting fires if no one is left in the building to detect the fire immediately and call 911. “People are confused, they run out of the building, they left the food on the stove or whatever,” Scawthorn said.
After an earthquake, fires could grow out of control because 911 call centres may be overwhelmed by the volume of calls, all available firetrucks are busy, or watermains may be broken. ICLR has called on the Montreal fire department to evaluate its facilities and test for earthquake resiliency.