Canadian Underwriter

Severe Burns

January 1, 2017   by Greg Meckbach, Associate Editor

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While the number of fires causing injury or monetary loss in Ontario has dropped by 33% over 12 years, fires still cause more than $1 billion in losses nation-wide every year, and 2016’s wildfire affecting Fort McMurray, Alberta is, by far, Canada’s most expensive natural disaster when measured by insured losses. The use of sprinklers – along with the ability to monitor heating, ventilation, air conditioning and security systems – are among the factors contributing to fire safety. But experts point out that the use of plastics in manufacturing, the high cost of sophisticated manufacturing equipment and business interruption losses resulting from fire are some of the trends affecting severity.

“Oftentimes, the business interruption claims are far in excess of the property loss,” says Greg Madill, executive general adjuster at SCM Insurance Services Inc.’s ClaimsPro Inc. subsidiary.

Fire and explosion ranked seventh (up from eighth in 2016) on the Allianz Global Corporate and Specialty (AGCS) top 10 business risks for 2017, released January 11. Fire and explosion and natural catastrophes “are the top causes” of business interruption (BI) “that businesses fear most,” AGCS reports in the Allianz Risk Barometer, based on a survey of 1,237 respondents in 55 countries.

fire fighter, firefighter industry.

“What I am seeing is that from a severity perspective, we have probably an increasing severity or collateral damage or other damage,” from non-residential fires, suggests Richard Smith, vice president of ClaimsPro Inc.’s specialty risk division for Ontario.

“When we have major industrial or commercial losses, they tend to have a bigger impact on other elements of business because everything is so interconnected these days and everything is so just-in-time these days and so we are seeing problems when equipment goes down,” reports Smith.

RSA’s experience with fire claims is that there are “a lot of occurrences where there is shared loss between BI and property,” reports Ryan Jones, claims relationship manager for RSA Canada.

Outside of Canada, one fire that caused BI losses was in the Chinese port of Tianjin in August 2015. The Associated Press reported at the time that explosions originated from a warehouse storing 700 tons of sodium cyanide, which can form a flammable gas on contact with water.

Guy Carpenter & Company LLC reported that the fireball and shock wave from the explosion “blasted shipping containers; incinerated vehicles in the port and on an adjacent highway overpass; destroyed warehouses, production facilities and dormitories.”

The Tianjin disaster was the “biggest insured loss” of 2015, Swiss Re Ltd. noted in Natural Catastrophes and Man-Made Disasters in 2015, published by the reinsurer’s economic research and consulting unit.


“Business interruption forms a large part of the uncertainty surrounding the ultimate loss for the insurance industry in this incident,” A.M. Best Company Inc. reported in 2015 of the Tianjin explosions.

In Canada, a total of 42,753 fires were recorded in Ontario, British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick, Nova Scotia and the Northwest Territories in 2007, the Council of Canadian Fire Marshals and Fire Commissioners (CCFM/FC) reported. That was the most recent year for which CCFM/FC reported statistics.

“Direct property damage from these fires” was estimated at $1.552 billion, reported CCFM/FC. The most recent year for which CCFM/FC published nation-wide statistics was 2002. That year, a total of 53,589 fires was reported, combining for more than $1.489 billion in property losses.

More recent data from some provinces indicates that while the total number of fires is decreasing – despite an increase in population – fire losses are rising.

In 2014, 1,809 fires were reported to Alberta’s fire commissioner, down from 1,935 in 2013. The dollar loss was about $192 million in 2014, down from $209 million in 2013. While Alberta reported a decrease in dollar loss, Ontario’s Office of the Fire Marshall estimated losses rose 52%, from $480.6 million in 2003 to $730.5 million in 2015. At the same time, loss fires declined 33%, from 16,451 in 2003 to 10,951 in 2015. In Ontario, a loss fire is one in which there is a death, injury or an estimated dollar loss.

There are “probably a number of reasons” for the decrease in frequency of fires, says Paul Hancock, vice president, global technical services, Canada and Toronto branch manager for Crawford & Company (Canada) Inc., commenting in general on non-residential fires and not on the Ontario fire marshall’s statistics. “Risk management would be one of them.”


Examples of risk management measures include self-monitored buildings and buildings with fire and smoke detection, Hancock adds.

“They have (heating, ventilation and air conditioning) systems that are monitored electronically (and) security systems that are monitored electronically,” he reports “You’ve got more sprinklered risks today than we’ve ever had, so that alone reduces the exposure.”

In Winnipeg, one concern with industrial buildings is when “changes to the structure or industrial process within it are not made under permit” notes Mark Reshaur, assistant chief of the Winnipeg Fire Paramedic Service.

“Changes to either can contribute significantly to the likelihood of a fire, influence a fire’s behaviour, its intensity and negatively impact the safety of building occupants and firefighters,” adds Reshaur. “When these changes are made outside of the permit process, the fire prevention, fire suppression and life safety provisions are often inadequate.”

Examples of permits could include those issued by the municipality or by the province.

There could be “modifications to a facility or process” that city officials “may not be aware of because the proper permits or applications were not filed either with the city or other regulatory agencies,” reports a spokesperson for the City of Winnipeg.

“When an occupancy permit is applied for, sealed drawings are submitted,” the spokesperson explains. “An engineer has examined the process and certified that it meets current regulatory requirements regarding the structure, the fire and life safety systems and the industrial process. They do this by affixing their seal to the plans. By making changes to the building or industrial process outside of the regulatory process, the owner is circumventing this important check in the system.”

The City of Winnipeg rarely has fires in high-hazard industrial occupancies, reports Reshaur.


“The most significant in recent memory was a fire in a windshield washer fluid manufacturing facility in 2012,” he says. “Significant quantities of flammable liquid were stored on site within the building and in a rail car adjacent the structure. The fire levelled the majority of the building and threatened the surrounding businesses and community,” he points out.

Reshaur was alluding to a fire at the Speedway plant in St. Boniface, estimated at the time to have caused $15 million in damage. In the aftermath, “the City of Winnipeg took a hard look at the existing inspection standards for all industrial properties,” he reports. “It was decided that all high-hazard industrial occupancies require a comprehensive fire inspection on an annual basis.”

In manufacturing, an increase in the use of plastics, in the last five to 10 years, is “making for larger losses,” suggests Douglas Backes, manager of staff claims for FM Global.

Recently, Backes suggests, there was a fire in a facility with a printing press that had polyvinyl chloride (PVC) piping.

“When that PVC was involved in the fire – mixed with products combustion – it turned to hydrochloric acid,” Backes recounts. “So what looked to be a fire that was controlled by automatic sprinklers and the fire department and the fixed protections that were there…next thing you know, we saw rust and corrosion start to occur throughout the entire facility.”

The use of plastic is “making clean-up and repair more complicated and more costly and more time as well,” Backes points out.

Another issue is mould.

“Just the presence of mould by itself is something that most property policies, if not all property policies… don’t insure,” Backes notes. “If you have a fire, and you get the firefighting hoses and the sprinklers going… if you don’t get the humidity out of the building, you are going to have mould. The awareness to mould, the idea of working where there is mould that is dangerous to your health… is really much greater now than it was five or ten years ago.”

Backes suggests that following a fire, “both the policyholder and the insurance company sometimes need to employ industrial hygienists and we really need to be careful to remove that mould from the building, from the equipment, from the occupancy following the fire.”

Costs of industrial fires “are probably escalating,” notes Hancock.

“The manufacturing equipment today is considerably different than it was 20 years ago,” he reports. “It’s more computer-controlled, more robotic. I think the risks are more complex.”

Hancock cites as an example a fire loss at a rocket fuel manufacturing plant.

“The costs alone to deal with a small fire in that facility were astronomical compared to the size of the facility,” he reports. “The facility was about the size of a garage, but the costs were huge because of the equipment that was there.”

The equipment that was lost was not easy to replace, Hancock suggests, so this resulted in downtime.

“One of the things I have definitely noted in the last couple of years is there tends not to be, on the industrial side of things, viable alternative operations – back-up redundant units – that can come into play,” says ClaimPro’s Richard Smith. “We used to have that on a regular basis, years back, but organizations these days are not spending the money necessarily on heavy equipment sitting around doing nothing, so they are relying on manufacturers and suppliers to get them repaired and replaced quickly, and it doesn’t always happen, particularly if you have remote-site losses.”

Backes suggests that frequency and severity can be reduced when clients implement loss prevention advice.

“What we see is the severity of the loss is reduced when a company installs automatic sprinklers,” he reports. “We see unsprinklered fires are seven times more severe in terms of dollars than unsprinklered fires. That’s not rocket science, but we have put kind of the statistic to the test and that just seems to be proving out year over year.”

Sprinklers “are very effective, not only in sometimes extinguishing but containing the fire until fire crews get there,” reports Carol Hanke, the Calgary fire department’s public information officer. Hanke is quick to suggest that sprinklers are an advantage only when they are being maintained.


“You can put all of these systems in place and if they are not being maintained by the building manager or the building owner, then really they are not effective because they might not work when you expect them to,” Hanke warns.

RSA’s Ryan Jones echoes Hanke’s comments, noting there are “losses that would not have been so large or great had the systems been maintained otherwise.”

Factors affecting severity include age of the building, age of the equipment, and age of the occupancy, reports Backes.

In 2001, a fire at a British Columbia warehouse, which was storing unprocessed paper, caused a loss of about $16 million, court records indicate. The warehouse was about 25 kilometres southeast of downtown Vancouver in New Westminster. A piece of paper caught fire in the exhaust grill of a forklift and drifted to a stack of unprocessed paper rolls.

First Choice Logistics operated the warehouse to store products for Kruger Products LP, formerly known as Scott Paper.

Kruger’s wares include Cashmere toilet paper, Scottie’s facial tissue and White Swan paper towels, among others. Its warehouse was divided into areas “where parent rolls were stored, where finished products were stored, and where both were stored,” wrote Justice Grant Burnyeat of the Supreme Court of British Columbia in a ruling released in 2010, on a lawsuit filed by Kruger against First Choice. “The aisles in the warehouse ran in a north/south direction and were used by the forklift drivers to access product.”

Earlier, lift truck operators noticed that one forklift would “overheat due to paper debris being sucked up into the body of the vehicle by the operation of the radiator cooling fan,” Justice Burnyeat noted. “From time to time, operators also noticed that they could smell paper smouldering within the machine as a result of contact with various hot elements associated with the engine and exhaust system.”

On July 31, 2001, one forklift operator “noticed a piece of paper approximately two to three feet long in the vicinity of the exhaust grill” of another forklift.

“The paper was on fire,” Justice Burnyeat wrote, adding the operator of the other forklift “saw the paper drifting away from the back of the forklift. The burning paper landed at the base of a stack of parent rolls. The burning paper immediately transferred flame to the stack of parent rolls.”

The building and contents – including about 3,713 tonnes of parent rolls of tissue paper and about 236,262 cases of finished paper products – were destroyed.

Before the fire, Scott’s property insurer, FM Global, had “analyzed the sprinkler system of the warehouse and recommended a maximum storage height of 15 feet for parent rolls,” Justice Burnyeat noted, adding that “instructions were later received from Scott to return to the former storage heights so that the 60-inch parent rolls would be stored four high, so 20 feet in height, and the 90-inch parent rolls would be stored three high, so 22-1/2 feet in height.”

Justice Burnyeat allowed Kruger to make a subrogated claim, but his ruling was overturned in 2013. British Columbia’s appeal court cited a “trilogy” of Supreme Court of Canada rulings during the 1970s, including Cummer-Yonge Investments Ltd. v. Agnew-Surpass Shoe Stores Ltd., which arose when a landlord’s insurer tried to pursue a subrogated fire claim against a commercial tenant.

“Where there is in a lease a covenant by a landlord [in this case, bailor] to insure, the tenant [in this case, warehouser] should benefit from it unless there is something inconsistent with such a result contained in the lease document,” the British Columbia’s Court of Appeal ruled.

“Large warehouses filled with smoke are super-dangerous for firefighters,” reports Hanke. “It is very easy to get disoriented and lost.”

Pulp and paper, power generation and steel mills are some of the more complex risks, notes Jones.

Some “external forces” on the insurance market include the wildfire last May that resulted in the evacuation of Fort McMurray, Alberta.

Verisk Analytics Inc.’s Property Claim Services unit estimated last summer that insured losses could be $4.67 billion, while Catastrophe Indices and Quantification Inc. (CatIQ) and Insurance Bureau of Canada released a loss estimated of $3.58 billion, subject to revision.

CatIQ managing director Carolyn Rennie said this past May that in the wildfire, there were about 27,000 personal lines claims averaging $81,000 each, about 5,000 commercial claims averaging “close to” $250,000 each and about 12,000 auto claims averaging about $15,000 each.


South of the border, a fire in a warehouse killed 36 this past December in Oakland, California.

The Associated Press reported that the building had been converted to artists’ studios and illegal living spaces.

AP quoted Jill Snyder, a special agent with the United States Bureau of Alcohol, Tobacco, Firearms and Explosives, as saying there were no sprinklers or fire alarm systems in the building. Investigators told AP the fire started on the ground floor and soon was raging, with smoke billowing into the second level and trapping victims whose only escape route was through the flames. The investigators were examining a refrigerator and other potential sources.

“Fires are largely caused by some type of human element action, whether it’s improperly supervised hot work in a facility, cutting and welding – things like that – or just literally putting storage too close to an ignition source or keeping people from smoking in the plant,” says Backes.

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