Lytton fire raises questions about possible subrogation

As the British Columbia Wildfire Service works with the RCMP to investigate the cause of a fire last week that burned down 90% of the village of Lytton, preliminary reports that the fire originated in the town — and not because of surrounding wildfires — have claims professionals discussing the possibility of subrogation claims being made against the perpetrators.

Wildfires in B.C. have been raging for the better part of last week and into this week, fuelled by exceptionally high temperatures (recorded as high as 49.6 C in Lytton), lightning strikes, and high winds. As of July 4, the B.C. Wildfire Service reported 678 wildfires in the province, and almost 90,000 hectares burned.

Two people are confirmed dead as a result of the fire in Lytton, which in 2016 had about 250 village residents and 2,000 indigenous residences in the surrounding area, according to Lytton’s website.

Lytton mayor Jan Polderman reported to CBC last Thursday that he had signed an official evacuation order just the day before (June 30), but the village was engulfed by flames before officials had a chance to co-ordinate the evacuation. About 1,000 people reportedly evacuated the area just before the blaze began.

“The town burnt down,” Polderman is quoted as saying by the CBC. “I noticed some white smoke at the south end of town and within 15 to 20 minutes, the whole town was engulfed in flame.”

As of yet, adjusters are not allowed into the area, the Insurance Bureau of Canada said in a statement to Canadian Underwriter Monday. “The priority right now is the safety of those affected and their loved ones,” IBC said in an email. “Standard home and business insurance policies cover fire damage and additional living expenses – for things like food, shelter, and clothing – when residents are forced to leave their homes because of a mandatory evacuation order issued by civil authorities.”

The cause of the fire is still under investigation. Various media reports, including statements made by the province’s premier, John Horgan, speculate that the fire may have been caused by a train.

CN Rail did not report any issues to the Transportation Safety Board (TSB) regarding any train incidents related to Lytton, per a CBC report. The investigation into the cause of the fire is still underway.

Speaking generally, and not specifically about the Lytton investigation, if a train were to be found the source of a fire, the potential exists for insurers to subrogate, meaning they would sue the perpetrator of the fire, as claims experts told Canadian Underwriter Monday.

“In general, if the railway company was in fact the source of a fire, there could be liability on the railway, depending on how the fire actually started and whether it could have been reasonably prevented,” Jim Eso, Crawford and Company (Canada)’s senior vice president of property & casualty commented in an email to Canadian Underwriter Monday. He was  speaking generally and not about the Lytton fire specifically.

Eso went on to say that any liability against a railway “would generally be the type of loss covered by a liability policy, depending of course of the terms of coverage obtained by the railway. We have seen in the past examples of individual liability (Kamloops area forest fires years ago) and corporate liability (the U.S. utility company in the California wild fires.).”

In Paradise, California, the Pacific Gas & Electric utility company (now bankrupt), agreed to pay US$11 billion to a group of insurance companies representing claimants from deadly northern California wildfires in 2017 and 2018, as reported in the Guardian. The company’s utility equipment was found to be at fault for the fire.

Glenn McGillivray, managing director of the Institute for Catastrophic Loss Reduction (ICLR), told Canadian Underwriter in an email Monday that “finding railroads at fault can be a tough exercise, especially proving that a train threw a spark that caused a fire.”

McGillivray noted rule amendments introduced by Transport Canada in 2015. The new rules allow provinces or municipal governments to order a railway to reimburse costs they incurred putting out any fire, and not just fires caused by crude oil spills. Several court cases under the new rules remain in progress after Ontario sued Canadian National Railway for $38 million following a May 2012 forest fire in Timmins.

The rules were changed after a runaway train exploded in Lac Megantic, Que., killing 47 people and resulting in a court-ordered $446 million settlement fund.

Feature photo courtesy of iStock.com/0871540 BC LTD.