When is Water Damage Covered Under a Homeowner’s Insurance Policy in Ontario?

Recently, in Wight v Peel Insurance, 2016 ONSC 6904 (CanLII), the Superior Court was required to determine whether water damage was covered under a Homeowner’s insurance policy, issued by Peel Insurance.

The facts in that case are relatively straightforward. Ms. Wright, owned a home located 15 metres from a creek. Approximately 500 metres up the creek was a man-made dam covering 10-12 acres, on property owned by Huntsville-Highlands. In April 2013, the dam suddenly burst, causing a wave of water to inundate Ms. Wright’s property, damaging both her home and exterior property. At the time, Ms. Wright’s home was insured by Peel Insurance under a standard comprehensive homeowner’s policy of insurance. After Ms. Wright reported her claim, Peel Insurance denied coverage, relying upon the ground water, surface water and general water exclusions set forth within the policy.

In a very well thought out and thorough decision, the Court analyzed whether the loss fell within the initial grant of coverage, whether the loss was otherwise excluded, and whether, if the loss was excluded, it fell within an exception, bringing the loss back within coverage. I will summarize the Court’s findings in turn.

Did the Loss Trigger Insurance Coverage?

The only evidence before the Court was that the dam failed as a result of negligent maintenance by its owner (Hunstville-Highlands). As such, the dam bursting was a ‘fortuitious or unexpected event’ triggering insurance coverage, subject to the other terms (exceptions) of the policy.

Did the Surface Water Exclusion Apply?

The insurance policy defined surface water to mean:

“water on the surface of the ground where water does not usually accumulate in ordinary watercourses, lakes, or ponds. This includes any waterborne objects;”

and excluded coverage for damage:

“caused by surface waters, unless the water escapes from a water main or swimming pool.”

After reviewing both the policy and the case law, the Court determined that surface water meant water that is not ‘contained,’ or is ‘uncontrolled,’ and noted that surface water derives most commonly from rain, springs or melting snow.

As the pond behind the dam was within a natural watercourse, the Court held that the surface water exclusion (above) did not apply.

Did the Ground Water Exclusion Apply?

The Court next analyzed whether the ground water exclusion applied. The policy defined ground water as:

“water in the soil beneath the surface of the ground, including but not limited to water in wells and in underground streams, and percolating waters;”

and excluded coverage:

“caused by ground water or rising of the water table;”

The Court noted that ground water was also not ‘contained’ water, and that as the water which damaged Ms. Wright’s property did not come up from the soil beneath the surface of the ground, this exclusion likewise did not apply.

Did the General Exclusion for Water Apply?

The policy further provided a general exclusion, excepting coverage for loss or damage:

“resulting from, contributed to or caused directly or indirectly by water.”

As such, the Court held that exclusion applied, as the losses were caused, at least indirectly, by water. Accordingly, unless one or more exceptions were applicable, there would be no insurance coverage.

Did Any Exceptions Apply to Bring the Loss Back Within Insurance Coverage?

Thankfully for the homeowner, the Court found that two exceptions applied, bringing the loss back within coverage. The first of these was:

“the sudden and accidental escape of water from a sewer or drain, sump or septic tank, eavestrough or downspout;”

In finding that this exclusion applied, the Court noted that the drainage system in place at the dam was intended to function much like a sewer, as “a conduit, usually underground, for carrying off drainage water and sewage,” and that as losses caused by sewer backups were covered under the policy, there was no reason to treat this loss differently than one from an accidental discharge of water from a sewer or drain (a covered event), which would accord with the reasonable expectations of the policy holder.

The second exception was:

“water which enters through an opening which has been created suddenly and accidentally by a peril not otherwise excluded;”

Construing this exception liberally, the Court held that there was no reason why it did not include water which entered the property through an opening created in a dam or an enlarged creek bed created by the sudden and accidental bursting of a dam, which would also accord with the reasonable expectations of the policy holder.

The Takeaway

While insurance coverage will ultimately come down to the language of your specific policy and the facts surrounding the loss, the Wight case is useful in that it illustrates certain instances where water damage is covered (i.e. burst water mains, dam failures, sewer backups) and other instances where it is excluded (i.e. flooding as a result of rain, see also Parker Pad & Printing Ltd. v Gore Mutual Insurance Company, 2017 ONSC 3894 (CanLII)).

The Wight case further illustrates that you should always talk to an insurance lawyer before accepting an insurance company’s denial of your claim. If your property insurance claim has been denied, call Michael’s Law Firm at 647-495-8995 today for a free, confidential assessment of your case. There are usually no fees unless I win or settle your life insurance claim.

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