The recent floods in Calgary and Toronto have brought considerable attention to the water damage coverage and exclusions of most home insurance policies. Water damage represents approximately 40% of all eligible home insurance claims, and costs the Canadian insurance industry just under $2 billion annually. While most home insurance covers water damage, there are two significant situations excluded in a standard policy: flood and seepage.
A flood, according to the Insurance Bureau of Canada, is defined as water flowing overland and entering your home through windows, doors and cracks. This is surface water on what would otherwise be dry land. The source could be a lake or river, melting snow, or even a backyard swimming pool.
Seepage is defined as water that enters through cracks, pores or gaps. Examples of seepage include water penetrating foundation walls, cracked pipes, improperly sealed bathtubs or showers, and missing or worn roof shingles or flashing.
The reason insurers don’t cover floods is because they cannot sell this protection at an affordable price. The purpose of insurance is to spread risk among many policy-holders, but only a small percentage of the population live in flood risk areas. As the cost of flood damage is often very significant, the premium needed to cover claims would render it unaffordable to those who need it.
As a result of the recent Alberta flood, it has been suggested that the province should make it mandatory for all insurers to offer this flood damage protection. This might help make the protection more affordable by spreading the cost over all homeowners, but the potential backlash of burdening the majority of people with a large premium increase for a benefit they don’t need, may make this idea very unpopular.
Unlike floods, seepage can affect any home. The main reason most insurers don’t sell this coverage is because of the difficulties of underwriting the risk in a manner that avoids anti-selection and hidden defects. Home insurance is meant to help policyholders deal with the financial impact of unpredictable events that are sudden and accidental. Although water damage from seepage may appear sudden and accidental to some homeowners, most insurers take the view that seepage damage is avoidable through normal home maintenance.
Some companies do offer limited coverage for seepage, but the damage must be the result of a sudden event and not from a pre-existing or maintenance related issue.
An example water damage claims that would be covered by most home insurance policies is a washer that malfunctions and floods your basement. Or your pipes freeze and burst because your furnace died while you are on a winter vacation.
Sewer backup is another example of an insurable water damage event. However, this protection is an optional addition to most policies and may not be available to all homeowners. In addition, the maximum benefit is determined by the homeowner at time of purchase.
Here are a few ways you can help avoid costly water damage to your home:
Inside your home
- If you live in home built before 1950, make sure you don’t have any galvanized pipes. The life span of this plumbing is estimated at 50 to 75 years. It is prone to internal corrosion that eventually leads to leaks and bursting.
- Make sure your bathroom tub and shower grouting is in good order. Even small cracks can allow water to penetrate the walls leading to rot and mould.
- If you have a sump pump, test it annually.
- Install a backwater valve. This one-way valve will prevent water from the city sewer from backing up into your home if the system becomes flooded or plugged.
- If you have a small amount of water in your basement after a rainstorm, it’s an indication that you have foundation cracks that need repair or that your weeping tiles (your foundation’s draining system) need to be replaced.
- If you are on vacation, turn the water off to appliances like your washing machine and refrigerator ice maker.
- Replace the rubber water hoses supplied with most washers with steel branded hoses that cannot burst.
Outside your home
- Keep melting snow away from the outside of your foundation.
- Make sure that the ground slopes away from your home to prevent water from pooling next to your foundation.
- Keep your roof gutters clean and make sure the water drains away from your home.
- Inspect your roof for worn or missing shingles and unsealed or bent metal flashing.
- Never buy or build on a flood plain even if there has never been a flood recorded in the area. If it can flood, it eventually will.