Pandemics, Epidemics, and Your Home Insurance

Are pandemics an “Act of God”?

There’s renewed debate on the topic as COVID-19 swelled from an epidemic to a pandemic if it qualifies under force majeur — literally, higher power — provisions under contract law. These provisions apply when there is an event that could not possibly be foreseen or prepared for which impedes a party’s ability to fulfill a contract, be it a supply contract, an insurance contract, a lease or a mortgage payment.

Act of God clauses, as they are known stateside, are often viewed by the public as excuses to wriggle out of obligations. That’s not only inaccurate; it’s almost diametrically opposed to how these clauses are applied in the real world. In fact, in some insurance contracts, such as flood or crop insurance, these events are the central risk the provider is taking on.

In Canada, the insurance industry refers to Acts of God as “perils.” It’s important to understand what the verbiage means, and how it affects your home insurance.

What Is Perils Coverage in a Home Insurance Policy?

According to the Insurance Bureau of Canada (IBC), a peril is a chance event that is unexpected and accidental. For example, if a garage door is spray painted with graffiti and must be cleaned, the damage is due to the peril of vandalism. The gradual deterioration of shingle roofing or the rotting of wooden fencing is natural and expected, and therefore, not an insured peril. A home insurance policy is not a maintenance contract.

The IBC lists four broad categories of perils coverage among policies:

1. Comprehensive coverage insures the dwelling and contents against all direct physical damage except for those perils specifically excluded.
2. Broad-form policies are the same as comprehensive policies with respect to the dwelling, but contents are only covered for named perils.
3. Basic policies cover only named perils. Typically, these would include fire, wind damage, lightning strikes, certain types of water and smoke damage, and vehicle or aircraft impact.
4. No-frills policies offer essentially no perils coverage.

It’s important to review your perils coverage as circumstances evolve. For example, if water levels are trending higher, it would be wise to ensure that’s a named peril in your basic coverage. Likewise, a rash of neighbourhood burglaries should tempt you to make sure theft is a named peril in your broad-form policy.

Is a Pandemic Covered by Home Insurance?

It’s hard to picture COVID-19 causing property damage, unless frustration from self-isolation causes you to go on a furniture-breaking rampage. But there are several ways in which this pandemic can affect your insurance and finances:

• If you are self-employed or a contractor, the impact of a pandemic lockdown could be significant. For example, the cancellation of many public conferences and events to which you might be providing services would be deemed force majeur. Likewise, the imposition of quarantine zones might make it impossible for you to deliver products or services. In such cases, a force majeur provision would essentially void obligations among parties.
• Insurers and benefit plan administrators have been in discussions since January to develop pandemic action plans. The Canadian Life and Health Insurance Association has been recommending plan sponsors to waive the waiting period for short-term disability benefits for those under quarantine or self-isolation. That now constitutes most of the country.
• By now, most Canadian travellers will have returned to the country. But as of March 13, the risk of travel interruption has been considered “foreseen,” and travellers who hadn’t returned by March 23 won’t be covered. The same applies to travel health insurance coverage.
• With non-essential workers mandated to stay at home, applying for coverage, managing your policy or filing claims may be less than seamless. Although most insurers can deploy a distributed infrastructure, with customer service representatives able to work from home, they’re facing a deluge of inquiries, and reaching your own advisor may be difficult.

Currently, the pandemic situation in Canada is still fluid, with significant changes unfolding every day. Stay home, stay safe, and keep an eye out for information on the evolving world of insurance and personal finances.