Canadian Underwriter

Explosive Claims

September 30, 2008   by Laura Kupcis

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On Aug. 10 at 4 a. m. an explosion rocked a Downsview, Ont. community. Residents awoke to watch a massive fireball fill the night sky. Later, they would learn about a massive explosion and fire at the Sunrise Propane Energy Group Inc. facility in the north-west Toronto area.

The event raises questions about immediate clean up, ensuing litigation and claims and the frequency of events such as these. Are the incidents a result of human error and how can they be prevented or mitigated? How are these companies insured and do they have adequate coverage? After an event such as this, what are insurance companies looking for, how do we ensure adjuster and expert safety and what increases the cost for insurance companies? And finally, what lessons can be gleaned

As many as 12,500 people were evacuated from their homes as emergency personnel flooded the area. The fire destroyed the plant and the explosion littered the surrounding community with debris. Two people lost their lives.

Some residents were able to return home within a day or two to survey the damage — mostly shattered windows — while others would wait longer as threats of asbestos loomed.

Right out of a movie

“This was probably the most awe inspiring, most devastating issue I have ever seen because of the destruction — the plant was completely levelled,” Mitchell Gibbs, national director of emergency services, Team Hazco Environmental Services, said. A 10-foot dome took out 10 headstones before becoming buried in a nearby cemetery, while a tank the size of four city buses had taken out several trucks before landing in the Toronto Works department. The other end of the tank cap had become embedded in a salt dome. Across the street from the plant, roughly eight homes had been knocked off their foundations, while even a kilometer away, the neighbourhood was littered with shards of metal and asbestos. ” One can never truly grasp the awesome power of the BLEVE (boiling liquid expanding vapour explosion),” Gibbs said.

In a propane explosion, cars are burned and flipped, while tanker trunks have been launched hundreds and thousands of feet away into adjacent properties, Gibbs noted. “Truly a scene out of a movie.”

For James Giffen, executive general adjuster and manager of Crawford & Company (Canada), Inc.’s Global Technical Services branch in Toronto, , looking out his window to “watch the sky light up” that early August morning, was eerily familiar to a Caledon Propane explosion he adjusted in Bowmanville, Ont. in November 2004. “It’s jaw dropping,” he said. “And you don’t get used to it.”

Ongoing investigation

An investigation into the cause of the Sunrise Propane explosion is still ongoing, according to the Technical Standards and Safety Authority (TSSA). “As a result of the investigation, [John Marshall, statutory director appointed under the Technical Standards and Safety Act 2000] determined that prior to the fire and explosion a truck driver at the Murray Road facility was engaged in a truck-to-truck transfer,” the TSSA reported in a notice regarding the subsequent suspension of Sunrise Propane’s three operations.

“The practice of transferring propane directly from one tanker truck to another is prohibited in Ontario. The investigation further determined that the prohibited unsafe practice of transferring propane from one truck to another was a frequent and routine operating practice at the facility,” the TSSA added. But whether there was an illegal truck-to- truck transfer at the time of the explosion has yet to be determined.

Clean up

During the initial clean-up of the site, which commenced within 24 hours of the blast, Team Hazco discovered large chunks of asbestos, mixed in with debris and shards of metal, littering the roadway and the surrounding neighbourhood. According to Gibbs, the debris field was one kilometer.

In excess of 100 HazMat workers were brought in to comb the neighbourhood to ensure no asbestos became airborne, and to safely remove the asbestos where it was found. The air quality in and around the plant was tested and deemed safe.

As residents returned home, insurance companies began surveying damage in the surrounding area. As of yet, no insurance personnel have been allowed on site to survey the damage directly on site, which means adjusters involved in the claim have not been able to collect information to date.

“It’s slightly frustrating when one can’t get onto the site and start to do what needs to be done,” Craig Walker, director, Maltman Group International, noted.

As of Sept. 23, the Office of the Ontario Fire Marshal had released the site to the property owner (from whom Sunrise Propane leased the space), according to the City of Toronto. As of that time, the site was deemed safe and the first phase of clean-up was complete. Further clean-up is the responsibility of the site owner, the City added.

Ensuing claims

In the surrounding area, there are reported of broken windows, cracked foundations and asbestos in the homes. Most of the claims are within meters of the explosion, with the odd claim outside of a kilometer range of the plant.

Mike Alwyn, branch manager, Toronto, commercial risk division, Cunningham Lindsey Canada, noted there are rumoured to be six houses that will be leveled due to damage, but his company is not involved in those claims. The 15 to 20 claims his firm has adjusted are minor, with most of the cost coming from the investigation of structure damage to the homes and environmental concerns, in addition to some auto claims. The cost of the claims are roughly $25,000 each, he noted.

RSA has only seen one incident of foundation damage to date, but has received about 15 claims, many also including property damage and broken windows. The company has received a few claims for business interruption, as local merchants could not open due to road closures.

Ensuing litigation

Despite the relatively small damage to the area homes, some residents have signed on to a class action lawsuit spearheaded by six law firms (who have since agreed to act together to maximize returns for the class). Notice of Action was served on Aug. 13, 2008.

According to Harvin Pitch, lawyer, Teplitsky, Colson LLP, it’s a claim against Sunrise, the City of Toronto, the Province of Ontario and the regulatory authority, TSSA — the latter two are currently on notice. The plaintiffs are claiming damages of $300 million for negligence, nuisance, trespass, strict liability (Rylands v. Fletcher) and liability pursuant to the Occupiers’ Liability Act, the Environmental Protection Act and the Family Law Act, Harvin, a lawyer representing the plaintiffs involved in the class action, noted.

The city is being alleged, among other things, as permitting a use that’s unsafe and the province for licensing and regulating, he added.

“If you’re in possession and bring on dangerous goods, you can be liable for the explosion regardless of what was caused,” Harvin said of Rylands v. Fletcher. There are, he noted, defenses, of course, such as acting in good faith or taking reasonable precautions.

Those in the class action have experienced such things as cuts and bruises, trauma, inconvenience, property damage, the potential depreciation of property values and economic loss suffered by businesses, Harvin said, pointing out that some are not covered by insurance.

The courts have not determined who is responsible yet.

Low level of incidence

But, whether or not the insurance claims and subsequent litigation will exceed that of the 2005 Suncor Energy oil refinery explosion remains to be seen. Suncor Energy was, with $1.28 billion in claims and litigation, the first manmade disaster in Canada where claims exceeded the $1 billion mark.

While the severity of the damage from these types of events can be large, the frequency of such events is low.

John Seyler, director of transportation and fleet services, Cunningham Lindse
y Canada, noted that on the transportation side of the business, he can remember only 10 events involving a vehicle and a hazardous or flammable good within the last five years — this includes motor vehicle accidents with transport trucks carrying these goods and spills.

According to the TSSA, between 2003 and the end of 2007, there were five fires and one explosion involving propane facilities, with only one serious injury in Ontario.

While people often have propane fires in their backyards due to improper use of their barbeque, a propane depot going up “would be about as common as having an armory’s depot go up,” Giffen noted. “It just doesn’t happen very often. The legislation and the safety requirements through the TSSA and the handling licenses that are needed by all staff involved are pretty stringent. So, it’s fairly unusual and you’ve got to have a pretty big build up of vapours to cause something like this.”

When Giffen worked on the claims surrounding an explosion at a Caledon Propane plant in 2004, there were roughly 20 or 30 claimants, mostly business owners, with property damage and business interruption claims. There was damage from exploding tanks that blasted three or four hundred meters into neighbouring buildings. One 100- gallon tank blew 400 meters through the air into the side of a building and subsequently the building caught on fire, resulting in roughly $800,000 in damage.

Not following procedure

“The individual that caused the explosion pled guilty to improper handling of propane,” Michelle Vanek, communications advisor for the TSSA, said of the incident at Caledon Propane. “So, essentially what that means is they weren’t following the rules.” Human error — or accident — is often a factor in manmade disaster, though every incident is different.

“Whether it’s a trucking business or a propane plant, they are as individual as the people who run them,” Linda Paccanaro, vice president of claims, Kingsway General Insurance, said. “Sometimes, I think the intent is to do things the right way, but it might not always happen that way. You do see a lot of human error, because that’s what accidents are.”

At RSA, the underwriting team is extremely focused on maintenance, age and condition of the plant because, along with human error, these are most often the cause of events. “Very often maintenance is one of the causes, but the other cause, more often than not, is human error,” Martin Thompson, director of commercial insurance, RSA, said. “Human error is something that you can work very hard on all your procedures, but someone making a mistake because they haven’t been trained properly or don’t understand what they are doing is very often one of the things that can give rise to a loss.”

Preventive measures

But while human error or accidents might be a critical factor in these events and eliminating all risk is something of a pipe dream, following accepted procedures, combined with adequate and frequent training, can help reduce the number of occurrences.

Ensuring continuous review of loss control procedures must be the number one priority for the insured, Thompson noted. “Employee training isn’t once a year, it’s an ongoing thing, because the main way in which you can reduce human error is by having systemic procedures, strong maintenance processes and making sure that your employees are well trained,” he added.

For Wendy Hillier, vice president of claims, Aviva Canada, coordinating efforts with local officials can help reduce occurrences. “I think the insurance industry can work closely with government agencies to identify risk, make recommendations on how to avoid risk and continue to be an advocate on issues involving by-laws, building construction, etc.,” she noted.

Linda Regner Dykeman, senior vice president of commercial lines, Aviva Canada, added that working directly with a company to help prevent a loss is paramount. Are chemicals stored and handled correctly and safely and do improvements need to be made there?

The prevalent driving factor is loss of life — “How do we prevent loss of life and property damage,” Regner Dykeman pointed out. “There are certain standards that are set by the government and we adhere to those standards as do the insureds,” she added.

Insuring a potentially hazardous risk

When underwriting a propane facility or propane handler, explosion is the key exposure. From that perspective there are a number of things that are taken into consideration:

• How well does the insured manage potential risks or hazards that could give rise to an explosion?

• Who has access to the site?

• How extensive is site security?

• How well trained or controlled are those who have access?

• How well trained are employees, both in the use of the equipment and in spotting the danger signs that could give rise to an explosion?

These types of issues are discussed with a loss controller, who goes out and visits potential insureds, Thompson said. The condition, age and maintenance of the plant and company are also taken into consideration.

Sometimes potential issues are realized through learnings from an event, such as an explosion. It is through these learnings and subsequent actions that an insurance company can help protect customers against future loss, Hillier noted.

A post mortem after an event can help open up dialogue between the claims and underwriting departments and subsequently help the underwriting department understand the nitty gritty of a claim. Then, when underwriting a similar policy, the department can understand all the risks and consequences associated with that business, Irene Bianchi, vice president of claims and corporate services, RSA, said.

It is not always a matter of just looking at a company and its risk, but looking outside the company at the risks that surround it. What are the neighbouring exposures and how do they impact the potential risk?

Furthermore, a company must implement a minimum set of safety standards in accordance with insurance company regulations. The broker and the insurance company will work alongside the insured to ensure that minimum standards are implemented. Premium is impacted by exposure, so a company that refuses to implement standards, or a company who only has the bare minimum standards in place, will be paying higher premiums. “It would be reflected, potentially, in the coverage and the acceptability of risk,” Regner Dykeman said. “So, if someone continuously refuses to implement things that are of minimum standard — and I’m not talking regulation-wise, because if it’s a regulation issue, certainly the government would get involved by law — something that we feel is necessary to prevent the loss and they refuse, they would become uninsurable or they could become uninsurable.”

Thompson too points out that if an insured wouldn’t commit to implementing certain steps that the insurer felt were critical for the risk, then fundamentally the insurer would reevaluate whether or not it wanted to provide insurance to that risk.

The major focus for Thompson is on making sure that businesses have a strong grip on loss control and risk management. To ensure that the insured really understands the potential consequences of an explosion and what that can mean for a business for in terms of how long it takes to get back up and running and the adequacy of the amount of insurance.

Adequate coverage

And lack of insurance can easily become a problem in these situations. It is very difficult to crystal ball a disaster the size of the recent Sunrise Propane explosion, the Suncor Energy oil refinery explosion or the Caledon Propane explosion.

“Most companies adequately insure for the average major loss,” Seyler noted. “The problem is that people are not prepared for the catastrophic losses. I don’t think that they expect it will happen to them.”

Paccanaro said she can see how lack of insurance can easily
become a problem, “because how big an insurance policy can you obtain, how much can you afford and what are you required to have. Those are all really good questions when you’re looking at a risk like that, because you’re very unlikely to have a high enough policy to pay for every single loss.”

One issue brokers have is trying to get the customer to agree on what the adequate level of coverage should be, because it’s very difficult for a customer to envisage the potential consequences of an explosion. And while the frequency of risk is very low, the severity is high, and very often its difficult for an insured to understand the magnitude of the potential loss that could occur. “Therefore, what typically will happen, depending on how strongly advised they are by their broker, they may or may not purchase adequate levels of insurance,” Thompson said.

Insurance to value can also become an issue during a large scale event. Because insureds are responsible for identifying the limit they require, there can be some gaps between what is obtained and what is required. In order to combat this problem, Regner Dykeman said working with a broker to determine a value that is more reflective of the true exposure can help reduce these gaps. “Underinsurance can be a serious problem for an insured” she explained. “In fact, if not adequately insured, this could put them out of business. There are tools available to brokers and insureds which help determine appropriate limits of insurance. At Aviva, we use the Marshall, Swift, Boeckh Building Valuation System.”


Despite preventive measures and best intentions, there has been an explosion and clean up must commence. First up for the insurance company is trying to validate coverage — what is covered — and what actions can be taken to reduce loss, Paccanaro noted. If there are other insurers, the broker or risk manager for the company will be aware of who is involved and then insurers can coordinate coverage and clean up.

The first thing to determine is what is the cause of the loss and secondly, how does the coverage apply to the loss. The insured no longer has a premise to work out of and that needs to be facilitated along with how big is the loss and what emergency measures need to be implemented.

The magnitude of the event brings about its own challenges, including the impact on the community, Hillier noted. She added that insurance companies tend to be slow to recognize an opportunity to work together and jointly serve the community, which can hinder timely assistance and sending out messages to those impacted.

The skills required to respond to such a large scale event are not necessarily limited to technical skills. An insurance company will often have a go-to list of staff, who have the skills to deal with situations in a crisis environment. Empathy and customer service are paramount — these are critical and an integral part of dealing with those that have been impacted, Hillier noted.

Finishing a claim is one thing, but how you do it is something entirely different, Bianchi noted. “From our perspective, it’s all around understanding how to service these people once these events have occurred,” she said. “Unfortunately, you get better at it the more times you do it and we don’t want to see lots and lots of catastrophes [just] so we can get really good at handling them.”

Adjuster safety

And while trained adjusters need to be deployed to the scene to adjust the file, their safety must be ensured, as well. There are situations where a scene might look safe to the untrained eye, but there could be hazardous chemicals in the air, or the building on site could be close to collapse. There is further threat from things such as asbestos or PCBs.

Seyler will frequently be in touch with the insured before arriving on the scene to determine what hazardous materials could be present. He is familiar with the placards on trailers and trucks, which describes the type of freight. This way, he is aware of any dangers that could be present from inhalation, physical contact, potential fire or risk of explosion. “Know what you are getting yourself into, because the last thing you want to do is put yourself at personal risk just for the sake of taking photographs or documenting a claim,” he warned.

There is basic equipment every adjuster should have readily available: a hard hat, safety boots, reflector vests, safety glasses, protective outerwear, rubber gloves and crash kit, in addition to the adjusting equipment. There are times when more protection could be required, such as a face mask or breathing apparatus, which is often available from the fire department on site.

During a larger scale event, it’s easy to let adrenaline get the best of an adjuster, because these events don’t happen often. “You really have to control your adrenaline and make sure that you’re not reacting imprudently before you do something,” Seyler added. “In that case, ask before you do something.” It’s best to identify oneself immediately and ask questions, don’t ever assume that hazardous items are visible.

“At the outset, you want to get as much information as you can about what’s there, what has burned or what has exploded, or what’s there leaking,” Walker noted. “Then it becomes somewhat site specific about how you develop a plan, but the bottom line is you’ve got to have an idea as to what’s there.”

When the adjuster can get on to the scene, job one is to figure out what happened in order to determine whether the loss falls within the policy and whether there’s anyone to go after for recovery, Giffen said.

“The bottom line is really the same no matter what the size of the loss,” Walker said. “You’re trying to figure out what happened. It’s just that the bigger the loss, the bigger the scope of what happened and sometimes the more difficulty is in trying to figure out what happened. Such total destruction that it may be difficult to come up with a cause.”

Increased costs

Coming up with the cause is only one part of the challenges an insurer faces on a large scale loss. Unforeseen exposures can lead to additional costs, including direct costs and litigation costs. Oftentimes these costs have not been factored into the premium, Hillier noted. These unforeseen costs aside, lack of planning can drive up the cost. To avoid these increases, an insurance company should have a robust plan and be on the ready to execute the plan at a moment’s notice.

Having a poorly managed, poorly controlled event, the damages are much larger than if the event is managed well. But, it’s not just on the part of the insurance company, how a municipality reacts and how quickly it can protect people, manage spread and deal with the aftermath is also imperative. How a municipality responds to a disaster can affect the outcome from the insurance perspective, according to Paccanaro.

Bylaws can also drive up the cost, as certain municipalities require that if damage is in excess of a certain amount, the company must rebuild elsewhere, Regner Dykeman noted.

Not to mention, in times of emergency, everything costs more — you’re paying a premium because it’s an emergency, Paccanaro noted. Experts and clean up crews all cost more in the middle of the night. Add to that, if there is seepage into the ground, or chemicals that are present, and the cost increases further.

Add litigation to the mix, and it’s going to be expensive, Bianchi said.

Lessons for the future

But from every event, there are lessons to be learned to help reduce the impact in future. The immediate call for a class action in the Sunrise Propane incident is a learning curve for underwriters in future. “I’m not convinced that underwriters would have necessarily thought about the potential for a class action,” Thompson noted. “That for me is something new that’s being brought into the underwriters consideration.”

The importance of being prepared comes to light after events such as this one,
and other large-scale disasters, not to mention the importance of safety and training. “I think what you really learn is that you have to be a really good communicator to be able to assess the risks of any given situation you are in.” Seyler said.

Each event brings about the opportunity to learn, grown examine and revisit the execution of a response plan, Hillier said. The de-brief of any event is as critical as the plan itself.


“I’m not convinced that underwriters would have necessarily thought about the potential for a class action.”