Ice storm 98: Insurance and reinsurance aspects of the storm
Whenever there is a loss of the magnitude of this event, there are always going to be decisions surrounding coverage issues that are relatively simple to make and there are going to be decisions that aren’t so simple. And policy wordings don’t always provide the clear-cut answers everyone is looking for - particularly when a party attempts to wrongly interpret a wording in its favor. Furthermore, insurers and reinsurers must contend with myriad social, political and business pressures that can be exerted from many forces – both within and outside the direct realm of insurance.
Power hadn’t been fully restored in the affected area and there were already questions as to how the additional living expenses (ALE) section of a homeowners policy should respond if there is no damage to the property in question. Other queries arose as to whether insureds took proper measures to mitigate or prevent losses. Some questions were answered January 22, 1998 when insurers said they would consider a January 13th call by Quebec’s Premier for people to their leave unheated homes, as the equivalent of an evacuation order. This allows additional living expense claims to be recognized in the absence of physical damage to insured property. (Mass evacuation by virtue of civil authority is a specific coverage grant within the ALE section of a policy, not dependent upon the existence of physical damage.)
It is not possible to provide an all encompassing report of what is covered under every circumstance. Personal lines (PL) policies, for example, tend to be similar but not identical. Most large insurers have their own forms and while the Insurance Bureau of Canada has a standard PL wording, it was not readily known at the time of this event how many insurers used it. For commercial coverages the situation is made even more complex by the almost infinite variety of forms and coverages available in the market. For large accounts, one must also consider manuscript wordings.
Some of the big questions involving commercial covers surrounded the issues of business interruption and liability. At the time of the storm, most commercial policies provided coverage on a broad form (all risks) basis with only a minority being written on the old fire and extended coverage basis. The property insured may include building, contents in various forms (equipment, stock, computers etc.) and – in perhaps 50 per cent of policies – a form of business interruption coverage (loss of income). As a general rule if there is no damage to the insured property there is no business interruption loss. At the time of this storm there were, however, some exceptions. A number of large firms (particularly manufacturing and processing risks) bought coverage for ‘off premise power.’ In the event of a shut down due to interruption of the power supply by an insured peril, business interruption coverage would respond. The more common forms of business interruption provide coverage if a listed peril damages a neighboring premise and civil authorities prevent the insured from accessing the premise in question.
From a liability standpoint, slips and falls on commercial property and casualties caused by snow plows or falling ice could be an issue. However one question that arose as a result of this storm was whether people would sue their town, municipality or utility because of how it handled (or mishandled) the emergency. Early in the storm, discussion had already focused on Hydro-Québec. In fact, the ice had yet to melt January 22 when a Montreal woman filed a petition for a class action lawsuit on behalf of the almost three million Quebecers deprived of power during the storm. The suit against the Quebec government and Hydro-Québec was filed the same day the utility announced a plan to credit its clients what some considered a paltry sum of money for each day they went without power.
Early on in the storm, the processing of thousands of claims had proven to be a major logistical issue for primary insurers with sizeable books of business in the affected areas. However as with the Calgary hailstorm of 1991 – up to early January, Canada’s most costly natural catastrophe – the ice storm necessitated the deployment of independent and company adjusters from other parts of the country. (Many adjusters sent to Calgary worked seven days a week for eleven or twelve months straight in order to process the remarkable number of claims generated by that event.) Policyholders in eastern Ontario and southwestern Quebec were cautioned to exercise patience in having their claims processed.
Despite the complexities of coverage issues and questions as to which claims would be paid and which wouldn’t, it was evident quite early on that Ice Storm 98 would go down as the costliest natural catastrophe in Canadian history. This can be proven by looking at the amount of time it took to tally claims for the Calgary hailstorm. It was close to two years before the industry recorded $342 million (1998 dollars) in insured losses for the event while it took just five weeks to tally $602 million (1998 dollars) in claims for the ice storm, and claims still kept rolling in.
Eventually, the $1 billion level was met – and handily exceeded – and for close to 15 years, the Great Ice Storm of 1998 remained as the costliest insured natural catastrophe in Canadian history.