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Homeowners Insurance Policy
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Every so often, I will get a call from someone who is having difficulty in making a claim under their homeowners insurance policy. Most of us are used to representing clients in first-party claims relative to their auto insurance policies, all of which are, effectively, exactly the same, regardless of the insurer. However, homeowners policies are not always the same. While many policies have similarities, there are numerous Riders and Endorsements which can make coverage unique to the individual insured.
If you are called by a potential client seeking advice relative to a claim under their homeowners policy, you should ask them to bring two documents to the initial interview. The first document is the Coverage Summary Page which sets out the limits of coverage. The second document is the actual policy wording and any Riders that are bound under the policy. You will require these documents to determine the perils against which your client is insured, whether there are any coverage restrictions or limitations under the policy and whether there are exclusions to coverage.
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When meeting with the client. the typical process to follow includes the following:
1. Who is insured under the policy?
Typically, the insured person(s) named on the Coverage Summary Page together with his or her spouse and any person under the age of 21 in their care is insured under the policy. A person over the age of 21 in the care of the named insured may be insured under the policy if that person is a student who is enrolled in and actually attends a school, college or university and who is dependent on the named insured or his or her spouse for support and maintenance.
Given the frequency with which young people return home to live with their parents after graduating from university, it is not uncommon to be faced with a situation where an adult child’s property is lost, damaged or stolen and is not insured under his/her parents’ home policy because that young adult is no longer considered to be dependent on his/her parents for support and maintenance. Anyone reading this paper who has adult children living at home and not attending school would be well served to ensure that that child’s property is properly insured.
2. What is covered under the policy?
Typical coverage under a homeowner’s policy would include the dwelling building and any attached structures. Such things as swimming pools, hot tubs, saunas and attached equipment on the premises are also typically insured. Also, private buildings or structures such as a detached garage are insured under the policy.
Coverage for personal property can, at times, be tricky and limited by the policy. A policy will typically insure:
- The contents of the dwelling and other personal property that the insured owns, wears or uses.
- Personal property that is temporarily away from the insured’s premises, anywhere in the world.
- The personal property of any student who is insured under the policy who is temporarily living away from home for the purposes of attending school, college or university so long as the student is dependent on a named insured or his or her spouse for support and maintenance and intends to return to the principal residence upon completion of the school year.
Real difficulties can occur for people who believe some of their goods are fully insured when, in fact, they may not be. Certain types of personal property are subject to limits of insurance such as:
- watercraft or their furnishings, equipment, accessories and motors
- utility trailers
- spare automobile parts
It is not at all unusual that all of these types of property are limited to a relatively modest amount of coverage.
It is also quite common for the insurance on certain types of property to be limited under the peril of theft. This would include:
- jewellery, watches, gems and furs
- coin or bank note collections
- stamp collections
- bicycles, including their equipment and accessories
- collectible cards and comic books
It is always open for an insured person to seek a Rider or additional coverage to insure these special types of personal property for a higher value. For example, those people who have significant value in jewellery, collections, etc. are able to purchase additional insurance through most home insurance companies.
Certain types of personal property may not be insured under the policy. This could include things like:
- business property
- motorized vehicles or their equipment
- camper units
- truck caps or their equipment
- aircraft or their equipment
3. Insured Perils
Once you have determined that your client is insured under the policy and that, hopefully, the dwelling or property that was subject to damage is insured under the policy, it is then imperative to determine whether the loss or damage was as a result of an insured peril.
Some insured perils are absolute while others are subject to limitation and restriction. For example, fire or lightning are insured perils not subject to restriction (other than, obviously, the insured’s own arson). However, other insured perils may be subject to limitation. For example, the peril of water damage is insured if the loss or damage is caused by the sudden and accidental escape of water from a water main or the sudden and accidental escape of water or steam from within a plumbing, heating, sprinkler or air conditioning system or domestic water container which is located inside the dwelling. However, the peril of water damage is not insured if caused by freezing during the usual heating season within a heated portion of the dwelling if the insured has been away from the premises for more than four consecutive days unless the insured has arranged for a competent person to enter the dwelling each day to ensure that the heating has been maintained or the insured had shut off the water supply and drained all the pipes and domestic water containers or if the plumbing and heating system is connected to a monitored alarm station providing 24 hour service. Typical insured perils, whether limited or otherwise, include:
- fire or lightning
- falling object
- impact by aircraft, spacecraft or land vehicle
- vandalism or malicious acts
- water damage
- windstorm or hail
- glass breakage
- theft, including damage caused by theft or attempted theft
- collapse, including weight of ice, snow, sleet
- escape of fuel oil
- damage caused by bears
Under most homeowner’s policies, certain losses or damage are not insured. One such exception to coverage is loss or damage that occurs after the dwelling has, to the insured’s knowledge, been vacant for more than 30 consecutive days. The obvious reason for this exception is the increase in risk to the insurer to bind coverage on a vacant property which may be subject to total loss in the event of an insured peril such as fire.
4. Basis of Claim Settlement
The insurer is liable to pay claims for an insured loss or damage up to the insured’s financial interest in the property but, obviously, not more than the applicable amount of insurance for that loss. Most coverages are subject to a deductible, often in the area of $500.
Relative to coverage for a dwelling building or additional buildings, typically, if the insured repairs or replaces the damaged or destroyed building on the same site with a building of the same occupancy and constructed with materials of similar quality within a reasonable time after the damage, the insurer will pay the cost of the repairs or replacement (whichever is less) without any deduction for depreciation. If, however, the insured decides not to replace or repair the damaged or destroyed building, the insurer will pay the actual cash value of the damage at the date of the occurrence.
Relative to payment of claims for loss or damage to personal property, the insurer will usually pay on the basis of replacement cost. However, there are typical limitations to payment on the basis of replacement cost. These limitations include:
- Articles that cannot be replaced with new articles because of their inherent nature. This would include things such as antiques, fine arts and paintings.
- Articles which, because of their age or history, substantially contributes to their value. This would include things such as memorabilia, souvenir and collector’s items.
- Property that has not been maintained in a good or workable condition.
- Property that is no longer used for its original purpose.
For those types of property, settlement will be made on the basis of actual cash value as opposed to replacement cost.
If you are being consulted relative to a claim under a homeowners policy, most likely, your client is being met with a denial of coverage or a limitation of payment by their insurer. This probably means that your client thought they were insured for a loss but their insurer is telling them that they were not. Disputes can arise between insureds and insurers relative to the interpretation of the homeowners policy. For example, if your client’s home was destroyed by fire and he/she wanted to replace it on the same site with a larger home constructed of materials with superior quality, must the insurer pay based on the cost of rebuilding the original home or based on actual cash value of the original home?
Most personal injury lawyers are familiar with the Supreme Court of Canada case Smith v. Co-operators General Insurance Company  2 S.C.R., 129. In that case, the insured commenced an action against her automobile insurer for non-payment of SASS benefits. The insurer argued that she commenced her action outside the limitation period. The insurer brought a motion for summary judgment which was allowed at first instance and by the Ontario Court of Appeal. However, the Supreme Court of Canada allowed the insured’s appeal because the insurer did not follow the proper protocol in terminating benefits. In coming to its decision, Gonthier J. stated: “There is no dispute that one of the main objectives of insurance law is consumer protection, particularly in the field of automobile and home insurance”. (Emphasis added).
In Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co.  1 S.C.R. 252, the Supreme Court of Canada set out the considerations in interpreting insurance policies:
In each case the courts must examine the provisions of the particular policy at issue (and the surrounding circumstances) to determine if the events in question fall within the terms of coverage of that particular policy. This is not to say that there are no principles governing this type of analysis. Far from it. In each case, the courts must interpret the provisions of the policy at issue in light of general principles of interpretation of insurance policies, including, but not limited to:
1. the contra proferentum rule;
2. the principle that coverage provisions should be construed broadly and exclusion clauses narrowly; and
3. the desirability, at least where the policy is ambiguous, of giving effect to the reasonable expectations of the parties.
ACTIONS AGAINST AN INSURANCE BROKER
If a client does not have coverage for a loss or there are limitations on coverage, counsel must then determine whether an action in negligence ought to be brought against the insurance broker who placed the policy. There are many Riders and Endorsements that are available in the insurance industry to protect property. If a client is uninsured or underinsured where an insurance product was available to them, the broker may well be negligent in not providing adequate insurance coverage to his/her client. Counsel are served well to recall the Supreme Court of Canada decision in Fletcher v. Manitoba Public Insurance , S.C.J. No. 121 where Wilson J. stated:
“In my view, it is entirely appropriate to hold private insurance agents and brokers to a stringent duty to provide both information and advice to their customers. They are, after all, licensed professionals who specialize in helping clients with risk assessment and in tailoring insurance policies to fit the particular needs of their customers. Their service is highly personalized, concentrating on the specific circumstances of each client. Subtle differences in the forms of coverage available are frequently difficult for the average person to understand. Agents and brokers are trained to understand these differences and to provide individualized insurance advice. It is both reasonable and appropriate to impose upon them a duty not only to convey information but also to provide counsel and advice.”
In Fine’s Flowers Limited v. General Accident Assurance Company of Canada (1977), 17 O.R. 2d, 528, the Court of Appeal heard a case concerning the duty of care owed by a private insurance agent to their insured. In that case, the insured asked his agent to obtain “full coverage” for his business. The agent obtained coverage under a policy which covered a number of risks but did not cover damage resulting from a breakdown of the heating system due to normal wear and tear of the pumps. A pump failure subsequently occurred and extensive damage was caused to the plaintiff’s plants and flowers. In discussing the duty owed by an insurance agent, the majority of the court found that an agent had a duty to advise his principal if he was unable to obtain the policies bargained for in order that the principal may take further steps to protect him or herself as was desirable. The court stated:
“In many instances, an insurance agent will be asked to obtain a specific type of coverage and his duty in those circumstances will be to use a reasonable degree of skill and care in doing so or, if he is unable to do so, “to inform the principal promptly in order to prevent him from suffering loss through relying upon a successful completion of the transaction by the agent”.
But there are other cases, and in my view this is one of them, in which the client gives no such specific instructions but rather relies upon his agent to see that he is protected and, if the agent agrees to do business with him on those terms, then he cannot afterwards, when an uninsured loss arises, shrug off the responsibility he has assumed.”
The law relative to the duty of an agent or broker to an insured is clear: they must provide both information and advice to their clients. It is not enough that an insurance agent or broker simply hand a menu of possible coverages to the insured and expect the insured to choose which is most appropriate for him/her. An agent/broker has a duty to provide advice and advice cannot be provided unless the agent/broker makes the appropriate inquiries as to what each individual insured’s needs are. It is therefore incumbent upon counsel, when faced with a situation where a client is uninsured or underinsured on a loss to make inquiries to determine whether the agent/broker breached the duty of care toward their client.
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