Home Insurance

When it comes to insurance, the 'act of God' isn’t real

By: Lisa Coxon on February 27, 2019
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After a wildfire ripped through the town of Fort McMurray, Alta., in May 2016, forcing more than 88,000 people to flee — the largest evacuation in Canadian history — and destroying more than 2,500 houses, the damage was estimated at more than $3 billion.

It’s easy to deem something so catastrophic, so out of our control, such a natural disaster an “act of God.” It’s a commonly accepted colloquial phrase that gets tossed around when we have no explanation for the cause of such a devastating event. We might assume, too, that something as unpreventable and unpredictable as a wildfire or any other natural disaster, would not be covered by insurance.

But the truth is, there is no God. At least not in the world of home insurance.

A major misnomer

Roughly 60,000 home insurance claims came out of the Fort McMurray wildfire. According to the Insurance Bureau of Canada, 95% of those claims were resolved as of May 2018. Any speculation as to whether the fire would be dubbed an act of God — and therefore excluded from coverage — were quickly shut down by IBC and other insurance experts.

“The term ‘act of God’ is nowhere in insurance policies,” says Pete Karageorgos, director of consumer and industry relations at the Insurance Bureau of Canada (IBC). “It’s not even a concept in insurance.”

So, where did this misnomer come from?

Sure, an earthquake could be considered an act of god, but so, too, is a hail storm. And hail is typically covered under almost any policy

“I think what happens,” says Daniel Mirkovic, president and CEO of Square One Insurance, “is there might be an event that occurs, like an earthquake, and people view that as an act of God. And because basic policies don't typically cover earthquakes, you’ll hear people say ‘oh this was an act of God and there’s no coverage for it.’”

But the term does apparently have a home in U.S. legislation. In a Slate article about why human-accelerated climate change should render the term “act of God” obsolete, writer Kyle Piscioniere traces the phrase back some 400 years ago, when it began being used within the British legal system. Today, Piscioniere says, it’s still used in American environmental legislation as a way for companies to absolve themselves of activities that wind up polluting the environment, like oil spills.

But in the world of Canadian home insurance, the label we give something isn’t what determines coverage or responsibility. Your insurance policy is.

God or no god, it just comes down to coverage

Home insurance coverage depends on what insurers refer to as “perils.” And different types of policies cover different types of perils. For instance, most basic insurance policies (also referred to as “named perils” policies) will include a list of what perils you’re covered for. Anything not on that list is excluded.

Comprehensive policies, on the other hand, operate a little differently. They cover you for all perils except for those listed. Put another way, the list in a basic policy is inclusive, whereas the list in a comprehensive policy is exclusive. Some events are excluded from both basic and comprehensive policies, such as acts of war, terrorism, earthquakes, and nuclear hazards.

“This is the problem, says Karageorgos “Some people think this was caused by some power up above and so it’s not covered. Well, that may not be the case. The policy is a contract and so you need to read it.”

Mirkovic and Karageorgos say there are no specific exclusions for “acts of God” in home insurance policies — or auto insurance policies, for that matter — even for weather-related events that are out of our control. If something weather-related is excluded from a basic or comprehensive policy, like overland flooding, or an earthquake, it has nothing to do with God.

“Sure, an earthquake could be considered an act of god, but so, too, is a hail storm,” adds Mirkovic. “And hail is typically covered under almost any policy.”

Exclusions aren’t always end of story

There was confusion around whether or not the Fort McMurray wildfire would be covered by insurance, but it was. “One of the key components of home insurance policies is that they must cover fire,” says Mirkovic. “Regardless of what the fire has resulted from. Fire is mandated in Canada under the Insurance Act.”

That said, there are other weather-related events that are generally excluded from home insurance policies, like earthquakes, landslides and coastal flooding. But that doesn’t always mean property owners are completely out of luck.

In Canada, there’s something called the Disaster Financial Assistance Arrangements, or DFAA.  This national government organization, managed by each of the provinces and territories, provides financial assistance when private insurance isn’t available.

For example, let’s say there’s an earthquake that triggers a tsunami that then results in coastal flooding to a home along a shoreline. The owners of that home would first go to their property insurance company and find out if the flooding caused by the tsunami is covered. If it’s not, the insurance company would give them a letter that they could then take to their provincial or territorial DFAA, who would then determine if they’re eligible for financial assistance.

“It’s not going to be a great amount of protection,” says Mirkovic. “But it’s something. It’s better than nothing.”

Home insurance companies will generally replace old with new, Mirkovic says, but DFAA has a schedule they must pay out to. For example, if your TV gets damaged as the result of something you’re covered for, your home insurance company would probably replace it with a brand new one. DFAA, on the other hand, would want to know if you have another television in your house. If you do, they likely won’t give you any compensation for the damaged one. Or they might only give you half of what it originally cost because that will get you a suitable television. “That’s kind of the approach they take with everything,” says Mirkovic.