Insurance is a contract in which the insurer, in return for payment of a premium, agrees to pay the insured if an event covered by the insurance occurs. There are two main types of insurance policies: personal and property.
Sickness, accident and life insurance fall into the personal category. These can be individual policies or group insurance.
Property insurance is damage insurance—you pay for it so that you will be protected from damage caused by certain events or risks. It’s the kind of insurance you want when a pipe bursts or a heavy rainfall causes flooding in the basement.
Every insurance policy contains a list of the nature of the risks insured. Most people who take out and pay for “all risk” insurance assume they are insured for all risks. This is not the case. There are always exclusion clauses in an insurance contract that list, often in great detail, those risks that are not insured. It is important to remember that these clauses are just as important as those relating to what is insured.
There are different rules pertaining to different kinds of insurance and the laws that apply can be complicated. The Quebec Civil Code section on personal and property insurance consists of 125 separate sections. One provision in the case of property insurance is that any risks that a company will not cover must be clearly indicated. Where there is any ambiguity in the meaning of the exclusion clauses, they will be interpreted against the insurance company and in favour of the insured.
Often policyholders who have suffered a comparatively small amount of damage are reluctant to go to court against their insurance company when coverage is refused. Sometimes, however, an insured person rejects the verdict of the insurance adjuster and successfully challenges the company in court.
For example, there is the condo owner who suffered damages when about 14 inches of water infiltrated his home in the middle of the night during a rainstorm. The floor was a total loss and there was extensive damage to the kitchen walls and cabinets. The repairs cost close to $9,800. The adjuster told the owner that there was an exclusion clause in his policy for damages caused directly or indirectly by rain or snow penetration through the roof, walls, doors or windows. Therefore his “all risk” insurance did not cover the cost of repairs.
The owner reduced his damages to $7,000 to fall within the jurisdiction of small-claims court, and sued. The court had to decide whether the owner’s claim was excluded in virtue of the excluded risks clause in the policy.
The exclusion clause read: “Sont exclus de la présente assurance les dommages occasionnés directement ou indirectement par la pénétration de la pluie, la neige, etc.”
The court had to interpret the exclusion clause and consulted the word “pluie” in the Petit Larousse dictionary, where it is defined as the precipitation of atmospheric water in the form of drops.
The plaintiff argued that even when it is raining, water damage may be caused not directly by the rain but by something else, such as water accumulation. In this case, the drainage pipes on the street were blocked by an accumulation of debris, causing the surface water to flow along the street and enter the condo.
The Quebec Civil Code states that an insurance policy is a contract of adhesion, a contract in which essential stipulations are imposed by the insurance company and are not negotiable. The code also states that exclusions of coverage in a policy must be expressed using the ordinary meaning of words. The code stipulates that in case of doubt, a contract must be interpreted against the person who drafts the contract of adhesion.
The judge held that the damages were not caused by the rain, giving that word its usual meaning, but by the flow of surface water. The insurance company was ordered to pay the $7,000.
When in doubt, the court will decide that coverage does exist. It may also look at the reasonable expectations of the parties, such as what the insurance company really meant to exclude and what coverage the insured expected to receive, especially with a policy named “all risk.”
It may also consider whether a clause is abusive. The Quebec Civil Code provides that where there exists an abusive clause in a contract of adhesion, such as an insurance policy, the court may annul it or reduce its effect on the consumer. This latter provision of law has been applied in insurance policies that provide for a specified number of visits to a home where the inhabitants are away.
In one such case, it was held that the requirement for a daily visit to a vacant home was reasonable during a heavy cold spell and the claim of the insured for damages was dismissed. Another judgment held that the visitation requirement during a January thaw was not reasonable and judgment was rendered in favour of the insured.
Always read the exclusion clauses of the policy as carefully for what is not covered as for what is and do not be fooled by the title “all risk policy.”
And when damage does occur and the adjuster says you are not covered, look at your policy carefully and consider consulting a professional.