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Does an earthquake endorsement cover sinkhole damage?


May 28, 2019   by Jason Contant


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If a home collapses into a sinkhole, is there coverage under a standard homeowner’s policy or earthquake endorsement?

Not under many homeowner’s policies, but possibly under the earthquake endorsement, depending on the policy language and if the quake caused the sinkhole.

“Our understanding is that [standard homeowner policies] usually contain some form of an earth movement exclusion which, in many cases, would also encompass sinkhole if it were to arise spontaneously on its own,” Stefan Tirschler, product and underwriting manager with Square One Insurance Services in Vancouver, told Canadian Underwriter earlier this month.

The issue came to light recently after a homeowner said that they were planning to take legal action against their insurer because they wouldn’t cover the cost of their house damaged by a sinkhole in Nova Scotia. The homeowner told CBC News that they were denied coverage because of an earth movement exclusion. It also doesn’t appear that they had an earthquake endorsement.

Tirschler said that the proximate cause of loss is critical to determining coverage related to earth movement. “If the sinkhole-related damage is concurrent with or caused by an earthquake, then coverage may be provided by some insurers’ earthquake endorsements,” he said. “However, if an ordinary sinkhole causes damage to a home in the absence of an earthquake, then an earthquake endorsement generally will not be triggered, and an ‘earth movement’ exclusion may continue to apply under some policies.”

There is a lot of variation in policy language, Tirschler notes. “Some go so far as to specifically state that earthquake will include other forms of earth movement resulting from earthquake,” he said. “And then some are not quite that specific, and they’ll simply read in coverage for the peril of earthquake itself. So, depending on the specificity of the endorsement, you may see that coverage either expanded or contained depending on what the insurer intended when they drafted it.”

Pete Karageorgos, director of consumer and industry relations for Ontario with the Insurance Bureau of Canada, agrees that coverage will vary by insurer. IBC has advisory wording related to earthquake coverage, but “companies are free to use their own policy wordings.” For example, IBC considers a single earthquake to be shocks that occur within 168 consecutive hours, but some companies may use different time periods in their policies.

Coverage may exist if, as a result of an earthquake, there is a landslide, snowslide or a sinkhole that opens up, “which is typically considered subsidence, liquefaction,” Karageorgos said. He added that settling of earth after a new home is built, for example, is not covered. “It’s not an insurable situation, it’s a maintenance issue.

“The lesson at the end of the day for consumers is always read your policy and understand it and ask your insurance representative what you’re covered for.”


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3 Comments » for Does an earthquake endorsement cover sinkhole damage?
  1. Bertha says:

    As a policy owner, I trust our broker to put in place all insurance options for where are home is built. They seem to say one thing and excecut another. The wild fire of May 3rd 2016, is to blame for ower homes damages. 3 years of emotional stress to add to what the beast caused. Please hear those who need the help. Slave lake, Fort McMurray, and any other related tragedies.

    • TBA says:

      Hello Bertha:

      The unfortunate part of a Consumer purchasing Coverage at a brokers office, is the fact that 95% of insurance purchases for the Consumer is based on Price, instead of coverage.

      I have worked in the Industry for over 30 years, and not once have I had an insured say, oh please, I want to pay more.

      It is all about what you are wanting to pay, and as I mentioned most consumers want the “cheapest”.

      I have seen time and time again, when a Wildfire breaks out, or an Earthquake occurs, the telephones ring off the hook for people wanting coverage after the fact. That is not how it works.

      There are certain Business/Industries where the consumer is not always right, this is one of them.

      I can honestly say, I never jeopardized a client in any way, shape or form just to increase my bottom line. As a matter of fact, I walk away from writing any policy if the client does not want to accept my professional advice. Unfortunately, brokers are afraid to tell the client exactly that, and that is what separates a broker you want to do business with and one you shouldn’t do business with.

      It is not the Insurance Companies fault a consumer underinsured, the onus is on the client to take the advice the broker provides. Believe it or not, the Insurance Industry is a profession, just like a Lawyer, Doctor, Accountant. You certainly don’t tell your Lawyer how to file legal documents, you don’t tell your doctor how to perform surgery, or the accountant about tax laws.

      You should heed the advice of your broker and stop shopping around for price and make certain you obtain the Insurance Coverage that protects your Assets. That includes Liability Insurance.

      As an example. I do carry the best possible coverage I can for my Townhouse. My annual premium is $1300 + per year. I do not carry extra coverage, other than an Umbrella Liability Extension, which only adds $150., HOWEVER, I have the best possible coverage, with the best possible Insurance Company for the Townhouse. Not just any company, a company that is very good with Condominium Insurance.

      If you do not feel comfortable with your broker, then find another one that will provide you the best advice, not agree with everything you say, because you are not the expert.

      I hope that provides you with some insight.

  2. Justin says:

    Bertha, it’s your responsibility to read the policy and acknowledge the limitations. You can’t say “I trust my broker to include all coverage options.”. You need to read the policy first and when a limitation concerns you then you need to ask your broker questions. We always have our clients sign their name to acknowledge that they have read the policy and understood. And if you didn’t bother but signed anyway and didn’t raise questions or concerns about the policy then you’ve joined the 99% of clients who thought they had better things to do. Best of luck.

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