6.3 - Second Group of Exclusions: Loss or Damage Not Insured

Question 1

Exclusions - Loss or Damage Not Insured:
>Marring, scratching, abrasion, chipping, or breakage

Answer 1

-LoD caused by marring, scratching, abraision, or chipping or personal property or breakage of fragile or brittle articles is excluded unless caused by:
>a specified peril
>an accident to a land vehicle, watercraft, or aircraft; or
>theft or attempted theft

-this exclusion is added to the comp form because of the change to all-risks coverage, the exemptions make the coverage under the comp form slightly greater than under the basic or broad form
-such losses are excluded in the homeowners forms, but special insurance is available for especially valuable articles, often under separate policies or as separate riders attached to a HOs policy

Question 2

Exclusions - Loss or Damage Not Insured:
>Wear and Tear

Answer 2

-comp and broad forms exclude loss due to wear and tear, deterioration, or defect
-its purpose is to avoid disputes about what a “risk” is
-in this case, the excluded causes of loss are not unexpected events but inevitable or inherent in the objects concerned
-the remedy for them is adequate maintenance or to accept them as business or inevitable losses

Question 3

Exclusions - Loss or Damage Not Insured:
>Faulty Design, Material or Workmanship

Answer 3

-all-risks policies exclude loss due to the cost of making good faulty design, material, or workmanship
-these are losses due to lack of expertise, lack of care, or both
-insurers do not want to pay for someone else’s poor workmanship

Question 4

Exclusions - Loss or Damage Not Insured:
>Setting, Expansion, Contraction, Moving, Bulging, Buckling or Cracking

Answer 4

-comp and broad forms exclude loss due to Settling, expansion, contraction, moving, bulging, buckling or cracking, including LoD caused by or resulting from pressure exerted by ground water, except resulting damage to glass of the dwelling and of the detached private structures, unless directly or indirectly caused by earthquake
-recent Canadian court cases have suggested this exclusion was only intended to exclude damages from gradual, naturally occurring events
-on this interpretation, if the settling is the direct result of sudden, human-made, fortuitous events such as a compaction of soil at an adjacent property, a broken watermain on municipal property, or a leak in a neighbour’s sprinkler system, the insurer will not be able to rely on this exclusion and will be required to pay the loss

Question 5

Exclusions - Loss or Damage Not Insured:
>Data or Data Problem

Answer 5

-when security of system is breached, consequences may be serious and costly to fix, similarly, actions that deny service to Internet users may also result in financial loss
-whether deliberately or accidentally created and spread , a virus represents potential financial cost to a business or individual computer owner
-the heart of the problem is data - data for financial transactions, business plans, or product development; data for software; data printed or on screen, in code, in numerical or alphabetic characters, in tables, or in text; data that could be compromised, misinterpreted, or misappropriated or deliberately or inadvertently deleted, added or changed
-property policies exclude data, they also exclude LoD caused directly or indirectly by a data problem
-but the exclusion of loss due to a data problem does not apply to LoD directly caused by resultant fire, explosion, smoke, or water damage, all as defined int he specified perils clause

Question 6

Exclusions - Loss or Damage Not Insured:
>Vacancy

Answer 6

-the homeowners forms exclude LoD if it occurs after the dwelling has, to the insured’s knowledge, been vacant for more than 30 consecutive days
-vacancy is material to the insurer’s acceptance of the risk, in terms of coverage, and perhaps also the policy premium
-exclusion is triggered after 30 days and applies for as long as the vacancy persists, and the policy is not terminated, however, and coverage is automatically reinstated as soon as the vacancy ends
-vacancy is not the same as unoccupancy - the distinction lies in whether the occupants intend to return
-prolonged vacancy, unoccupancy, or disuse adversely affects the character of the risk, the property may be unsupervised, it may be vandalized, or used by trespassers who may start a fire, accidentally or deliberately, and should a fire start in the premises, notification to the fire department may be delayed

Question 7

Exclusions - Loss or Damage Not Insured:
>Nuclear Incident

Answer 7

-both direct and indirect loss caused by nuclear incident are ecluded, except for ensuing loss or damage which results directly from fire or explosion

Question 8

Exclusions - Loss or Damage Not Insured:
>Radioactive Contamination

Answer 8

-the homeowners forms exclude LoD caused by contamination by radioactive material except for ensuing LoD which results directly from fire or explosion; this exclusion is taken from the insurance acts of the common law provinces and territories
-contamination insurance is highly specialized and usually obtained only by the few who handle radioactive substances
-in hospitals of laboratories, property could be rendered unusable, which is really a business risk
-the major exposure for operations that use radioactive material extensively (for example power generators) is liability to others
-insurance for such risks is available through specialty sources

Question 9

Exclusions - Loss or Damage Not Insured:
>War Risks

Answer 9

-LoD caused by war, invasion, act of a foreign enemy, hostilities, civil war, rebellion, revolution, insurrection, or military power is excluded
-under this exclusions, loss by fire and by explosion is excluded if caused by one of the listed events
-generally the events listed in this exclusion are considered uninsurable
-under the HOs forms, riot is not considered a war risk and is therefore covered either as a named peril in the basic form or because it is not excluded under the all-risks coverage of the broad or comp form

Question 10

Exclusions - Loss or Damage Not Insured:
>Intentional or Criminal Acts

Answer 10

-the HOs forms, and property policies in general, exclude los sfrom an intentional or criminal act or failure to act by any person insured by the policy or at the direction or any person insured by the policy
-historically, where there has been more than one insured under the policy, it has been possible to exclude coverage for all insureds even if the loss was caused by the criminal or intentional act of just one of them
-more recently, however, legislation has been passed in some provinces to protect “innocent co-insureds”
-to obtain this protection, the innocent insured must cooperate with the loss investigation, submit to an examination under oath, and produce requested information and documentation
-in recognition of such legislative changes, the exclusion in the IBC forms now protects an innocent co-insured - any person insured by the policy, but only to the extent of that person’s proportional interest in the lost or damaged property - who:
>has not committed and was not a party to the intentional or criminal act or failure to act
>has not abetted or colluded in the intentional or criminal act or failure to act; or
>has not consented to the intentional or criminal act or failure to act and neither knew nor ought to have known that the intentional or criminal act or failure to act would cause the loss or damage

Question 11

Exclusions - Loss or Damage Not Insured:
>Property being Worked On

Answer 11

-all HOs forms exclude damage to property undergoing any process or while being worked on, where the damage results from the process or work
-resulting damage to other property is still covered

Question 12

Exclusions - Loss or Damage Not Insured:
>Water Damage

Answer 12

-accumulations of ice and snow often compound problems, when water freezes, its volume increased, and the pressure can fracture pipes or other apparatus
-unlikely where heating is maintained in winter, but in unheated areas or outdoors, precautions are needed - ex. shutting off the water supply and draining pipes
-the policy will not cover damage caused by freezing to such piping or apparatus if it is not adequately protected

Question 13

Exclusions - Loss or Damage Not Insured:
>Covered Water Damage - the 4 Sources of Water Damage

Answer 13

-in IBC named-perils forms, water damage encompasses loss of or damage to insured property caused by only 4 specific scenarios - under the water damage peril, and in the all-risks forms, coverage for those scenarios is ensured by making them exceptions to the exclusion of water damage so that the same 4 sources of water damage are covered.
-broad form includes them under the water damage peril in Coverage C
-broad and comp form excludes water damage, except for these four sources of water damage

1. the sudden and accidental escape of water or steam from within a plumbing, heating, cooling, sprinkler or air conditioning system or domestic water container which is located within the insured’s dwelling or detached private structures
2. the sudden and accidental escape of water from a domestic water container which is located outside the dwelling or detached private structures
3. the sudden and accidental escape of water from a watermain located outside the insured’s dwelling or detached private structures
4. Water that enters the dwelling or detached private structures through an opening created suddenly and accidentally by an insured specified peril other than water damage

Question 14

Exclusions - Loss or Damage Not Insured:
>Covered Water Damage - 1. Building Systems and containers, and sprinkler systems

Answer 14

> building systems and containers:
-steam may escape from a hot-water heater or storage tank or heating system with such force that it expands over a large area, cools and becomes liquid
-water leaks from plumbing systems if they are not maintained as they age
-A/C systems condense excess moisture that is then drained through a pipe and if the pipe becomes blocked, it will back up and water will leak, damaging the dwelling or DPS and possibly the contents

> sprinkler systems:
-may either be the wet of the dry type
-pipes in a wet system release water when the heat of a fire opens a sprinkler head
-the pipes in a dry system only contain air under pressure, which is released if a head opens, the resulting drop in pressure trips a booster pump that sends water into the pipes to the heads that have opened
-systems should be properly maintained or serviced as they age

Question 15

Exclusions - Loss or Damage Not Insured:
>Covered Water Damage - 2. Exterior Domestic Water Container

Answer 15

-an example of swimming pool is the most obvious, but “domestic water container” is broadly defined
-freezing is specifically excluded

Question 16

Exclusions - Loss or Damage Not Insured:
>Covered Water Damage - 3. Watermain

Answer 16

-watermain is usually underground and often provides water for firefighting, as well as for drinking and other domestic uses
-if breaks, can lead to thousands of litres of water pouring out very quickly, can often overwhelm drainage facilities

Question 17

Exclusions - Loss or Damage Not Insured:
>Covered Water Damage - 4. Opening created by Insured Peril

Answer 17

-water may enter the dwelling or DPS through an opening that has been suddenly and accidentally created by an insured peril other than water damage
-but that entry point of water need not coincide with the creation of the opening, not long enough for the insured to have had reasonable chance to deal with the original damage that caused the hole

Question 18

Exclusions - Loss or Damage Not Insured:
>Water Damage - Freezing during heating

Answer 18

-freezing in an unheated part of the dwelling or DPS during the normal heating system is NOT covered

-freezing IS covered for each part of the dwelling or DPS that is heated, unless all members of the insured’s household are absent for more than a certain number of days - the number of days is left unspecified in IBC forms, but 4 days has been a common standard
-in the event of such an absence, and exception to the exclusion may restore coverage on either of two conditions:
1. the insured arranges for a competent person to enter the dwelling or DPS each day it is unoccupied - including the first 4 days - to verify that the heating system is continuing to work properly. “competent person” - they ought to know and be able to do what the insured would do in the circumstances
>if freezing still occurs during this unoccupancy with the person checking, the insured would not be penalized, the insured may be subrogated to any rights the insured might have against the person responsible for checking the dwelling or DPS
2. the water supply has been shut off and all pipes and domestic water containers have been drained

Question 19

Exclusions - Loss or Damage Not Insured:
>Water Damage - Continuous or Repeated Leakage or Discharge of Water

Answer 19

-repeated leakage or discharge of water implies deterioration or a failure to maintain the property
-that suggests the ultimate damage is not fortuitous and so is not an insurable risk
-the question whether water leakage has been continuous or repeated as opposed to a sudden and accidental escape must be decided on the facts of each case

Question 20

Exclusions - Loss or Damage Not Insured:
>Water Damage - Seepage

Answer 20

-“seepage” means - a slow flow of water that takes place over a more extended period of time than accidental discharge, usually through porous material
-an isolated event is not excluded, but seepage may persist for a long time, or reoccur from time to time
-repeated seepage also implies deterioration or a failure to maintain the property

Question 21

Exclusions - Loss or Damage Not Insured:
>Water Damage - Escape from a Sewer, Septic System, or Sump

Answer 21

-water backing up or escaping from a Sewer, Septic system, or sump is generally caused by a plugged or otherwise dysfunctional drain or by a reverse flow from an external source beyond the dwelling or DPS’s plumbing and drainage systems
-common cause of sewer blockage is tree roots breaking through the pipes
-frequently, reverse flows occur during or shortly after a significant rainfall where the systems cannot handle the volume of water and possible rise in the water table
-some insurers amend this exclusion to allow the coverage of sewer backup, perhaps to a specified amount, depending on the location of the risk and additional premium will probably be charged

Question 22

Exclusions - Loss or Damage Not Insured:
>Water Damage - Water System or Domestic Water Container

Answer 22

-this exclusion concerns a receptacle rather than the damage caused by escaping water
-this exclusion is of LoD to a system, which includes plumbing, heating, cooling, sprinkler, or air conditioning systems, in addition to domestic water containers from which water has escaped
-such LoD to the system or container would likely be due to mechanical failure, wear and tear, deterioration, or corrosion
-damage to the system or container is therefore not covered

Question 23

Exclusions - Loss or Damage Not Insured:
>Water Damage - Building under Construction of Vacant

Answer 23

-LoD caused by the escape of water or steam is not covered if it occurs while the dwelling or DPS is under construction or vacant - even if written permission for construction or vacancy, or both, has been given by the insurer

Question 24

Exclusions - Loss or Damage Not Insured:
>Water Damage - Freezing involving Domestic Water Containers

Answer 24

-coverage for escape of water from a domestic container located outside the dwelling or DPS, does NOT include:
>any LoD when the escape of water is caused by freezing; or
>any LoD caused directly or indirectly to a “domestic water container” as a result of freezing

Question 25

Exclusions - Loss or Damage Not Insured:
>Water Damage - Surface Water

Answer 25

-Surface water refers to water on the surface of the ground that follows no course or channel; does not gather into or form a natural body or water such as an ordinary watercourse, lake, or pond; and is generally lost by evaporation, percolation, or natural or human-made drainage
-exceptions are made for water escaping from a watermain or a domestic water container (such as a swimming pool) outside the insured’s dwelling or DPS

Question 26

Exclusions - Loss or Damage Not Insured:
>Water Damage - Ground Water

Answer 26

-ground water is most likely to cause damage in low lying locations and in basements or underground installations
-this exclusion may be considered unnecessary because water escape must be sudden to be covered, yet ground water is more likely to seep
-it has been successfully argued in court that sudden can apply where the volume of the initial escape is only small
-the appearance of any water where there was none before would be sudden
-a rapid rise in the water table could cause drains or sewers to backup, but another water damage exclusion deals with that possibility
-this water damage exclusion effectively removes these issues from discussion

Question 27

Exclusions - Loss or Damage Not Insured:
>Water Damage - Shoreline Ice Buildup and Water-Borne Ice

Answer 27

-concerns a phenomenon that occurs on the windward sides of some lakes or rivers that are subject to ice buildup in winter
-strong winds can blow water-borne ice that has broken free of large frozen areas onto the shore, where it may be pushed further ashore by other ice floes and destroy nearby structures

Question 28

Exclusions - Loss or Damage Not Insured:
>Water Damage - Flood

Answer 28

-“flood” is a somewhat general term often loosely applied to any accumulation of large amounts of water in a dwelling or DPS
-in IBC forms, and commonly in property policies, flood exclusions apply to, but are not limited to, waves, tidal waves, tsunami, dam breaks, seiche, or the rising of, the breaking out of, or the overflow of any body of wat or watercourse, whether natural or human-made

Question 29

Exclusions - Loss or Damage Not Insured:
>Watermains

Answer 29

-damage caused by water suddenly escaping from a watermain is covered, but damage to the watermain itself is not
-this exclusion applies only to a watermain
-some insurance carriers and municipalities now offer insurance products to cover this type of loss, but it is not covered under the wordings of any of the HOs forms

Question 30

Exclusions - Loss or Damage Not Insured:
>Pests

Answer 30

-loss due to birds, vermin, raccoons, insects, or rodents including bats is excluded except for LoD to glass of the dwelling or DPS
-birds, insects, or wild animals may damage property by gnawing and chewing through roofing or siding or by instinctive functions such as nesting or foraging
-insurers avoid this type of loss, though they may respond to loss that results from it
-Ex. excludes damage by rodents to electrical wiring insulation, but if a short circuit arising from that damage causes a fire, the policy will cover the resulting fire loss

Question 31

Exclusions - Loss or Damage Not Insured:
>Smudging and Industrial Smoke

Answer 31

-in agricultural smudging, operations such as fruit orchards or groves use containers of slow burning combustible material (called smudge pots), ignited to create a blanket of smoke that is not hot, but warm enough for the trees to prevent loss of their fruit when low temps are expected
-loss caused by such smoke is excluded because it comes from a friendly fire - a fire for useful purposes (as distinct from a hostile fire, which is a fire for destructive purposes)
-for similar reasons, loss or damage caused by smoke from industrial operations is also excluded

Question 32

Exclusions - Loss or Damage Not Insured:
>Earth Movement

Answer 32

-LoD caused by snowslide, earthquake, landslide, or any other earth movement is not covered
-there is, however, an exception to this exclusion that restores coverage if any of these perils results in fire or explosion; the resulting LoD is insured

Question 33

Exclusions - Loss or Damage Not Insured:
>Theft from Part of The Dwelling Rented to Others

Answer 33

-LoD due to theft or attempted theft is excluded if part of the insured’s dwelling is rented to others partially or fully furnished and the tenant or a tenant’s employee or household member steals insured property from the rented portion
-merely assuming the property was taken by a tenant would not be enough for the insurer to deny the claim; some reasonable evidence would be required

Question 34

Exclusions - Loss or Damage Not Insured:
>Vandalism or Malicious Acts or Glass Breakage While Dwelling under Construction or Vacant

Answer 34

-LoD due to vandalism or malicious acts or glass breakage while dwelling is under construction or vacant is excluded even if permission for construction or vacancy has been given by the insurer
-the exclusion alerts the insured that such losses are virtually inevitable and will not be recoverable, so the insured should act prudently to avoid them

Question 35

Exclusions - Loss or Damage Not Insured:
>Theft from a Dwelling under Construction

Answer 35

-LoD due to theft or attempted theft from a dwelling under construction is excluded for the same reason as vandalism or malicious acts or glass breakage
-such premises are often targets for vandals and thieves
-the exclusion alerts the insured that such losses are virtually inevitable and will not be recoverable, so the insured should act prudently to avoid them

Question 36

Exclusions - Loss or Damage Not Insured:
>Rust or Corrosion, Wet or Dry Rot, Fungi, or Spores

Answer 36

-losses due to rust or corrosion, dampness, extremes of temperature, wet or dry rot, or fungi or spores are excluded
-these events occur naturally but can be prevented or controlled by adequate maintenance
-for property insurers, mould as a sole cause of loss is not a risk, because, in the right conditions, it is almost inevitable
-but mould may develop after property suffers damage from some other cause and increase the damage
-the question is whether the mould was a separate peril or whether it came about in a natural way during the period immediately following the damage caused by an insured peril
-the word “mould” does not appear in the exclusion, but “mould” is included in the definition of fungi, which appears in the definitions clause of the homeowners forms

Question 37

Exclusions - Loss or Damage Not Insured:
>Fuel Oil

Answer 37

-many insurers are unwilling to cover damage caused by heating oil leaking from residential oil tanks unless the tanks are relatively new
-the causes of leaks occur inside the tanks, making meaningful inspection almost impossible
-tanks more than 25 years are suspect, but there is no firm benchmark, and tanks less than 25 years old may leak
-therefore, loss due to the release, discharge, or dispersal of fuel oil is excluded

Question 38

Exclusions - Loss or Damage Not Insured:
>Trickery or Fraud

Answer 38

-loss arising from trickery or fraud is excluded in all three of the homeowners forms
-the possibilities are almost endless, and such losses may be difficult to prove
-most insurer will not cover the risk that someone (often a perfect stranger) is honourable and will act on good faith

Question 39

Exclusions - Loss or Damage Not Insured:
>Terrorism

Answer 39

-“terrorism” is; an ideologically motivated unlawful act or acts committed by or on behalf of any groups(s), organization(s), or government(s) to influence any government and/or instill fear in the public or a section of the public
-terrorism is defined in all three homeowners forms so as to exclude the peril it represents
-personal property policies generally exclude LoD caused directly or indirectly, in whole or in part, by terrorism as defined or by any activity or decision of a government agency or other entity to prevent, respond to, or terminate terrorism
-the exclusion applied whether or not other causes or event (whether covered or not) contribute concurrently or in any sequence to loss arising out of terrorism - the insured is still covered for ensuing LoD that results directly from fire or explosion

Question 40

Exclusions - Loss or Damage Not Insured:
>Electrical, Electronic, and Mechanical Breakdown

Answer 40

-all-risks policies exclude losses caused by electrical, electronic, and mechanical breakdown or disturbance, with the exception that LoD resulting from fluctuations in artificially generated electrical current is covered
-LoD caused by breakdown is likely due to mechanical failure, wear and tear, or deterioration and is therefore not covered
-the remedy for this is adequate maintenance or to accept losses as this sort as inevitable