Increasing risks could affect availability of flooding insurance
The impact of climate change on the insurance industry has made it a vocal supporter of remedial measures.
“The insurance industry, which so often gets bad press, is leading the charge and deserves a shout-out,” says John Olah of Beard Winter LLP in Toronto.
Earlier this month, the Insurance Bureau of Canada called on the private sector and all levels of government to deliver a National Action Plan on Flooding. The key components of the plan are educating consumers to reduce their own risks, relocating homes from areas that flood repeatedly, developing affordable insurance protection for remaining properties, and amending land-use rules and permitting processes to prohibit development on flood plains.
Updating flood plain mapping is foundational to progress.
“Ontario is still operating on outdated mapping,” Olah says. “And what we need is a new partnership between federal, provincial and municipal government to ensure that mapping reflects the impact of climate change.”
This having been said, flood plain regulation has worked relatively well in Ontario.
“One reason is that flood plain control in Ontario — unlike anywhere else in Canada — is managed by conservation authorities who work on a watershed basis,” Olah says.
Fortunately, in May 2017, the Ontario Court of Appeal’s ruling in Gilmor v. Nottawasaga Valley Conservation Authority, turned aside a Divisional Court judgment that threatened the power of conservation authorities to rely on safety considerations in exercising their mandate under the Conservation Authorities Act. Olah, who represented Nottawasaga, convinced the court that his client had properly taken safety considerations into account in refusing a development application on a floodplain.
Still, and as might be expected, the growing impact of climate change has fostered a corresponding increase in related litigation.
“There’s a mini-cottage industry developing in climate change-related litigation,” Olah says. “And flooding has been the most prominent driver.”
Ontario cases have included Wight v. Peel Insurance, in which a homeowner succeeded on a claim resulting from a dam bursting on a neighbour’s property; a $900 million ongoing class action by Muskoka residents, cottage and business owners against Ontario for damages caused by alleged ineffective management of water levels; Cerra v. Thunder Bay, a $300 million ongoing certified class action against the city for negligence in the operation of a water pollution control plant and inadequate flood management; and McLaren v. Stratford, in which the city of Stratford settled for $7.7 million in response to allegations of negligence in the design and management of the sewer system.
The circle of potential defendants is also widening.
“I was involved in a flooding-related lawsuit where the people at risk included hydrologists, contractors, soil experts and engineers” Olah says.
Otherwise, property and casualty payouts in Canada have more than doubled every five years since 1980 and remain on the rise.
“P&C payouts averaged $400 million between 1980 and 2008 but have exceeded $1 billion in the last seven or eight years,” Olah says.
Ontario alone experienced some $935 billion in insured flood damage in the first nine months of 2018, and statistics from the University of Waterloo Intact Centre on Climate Adaptation, which is funded by insurers, show that some 19 per cent of Canadian homeowners were at risk from overland flooding in 2015.
But it’s not just these 19 per cent and their insurers who are paying the tab. Taxpayers are also increasingly on the hook: between 1970 and 1975, for example, there were only eight natural disasters under which provinces and territories were required to prove assistance, compared to 14 in 2014 alone.
“Payouts from the public purse between 2015 and 2019 exceed the total for the preceding 39 years,” Olah says.
And things aren’t looking any better going forward.
“What’s being said is that substantial warming has increased the frequency of heavy precipitation in the 21st century, and that even if we were to achieve the aims of the Paris accord — which we won’t — we’re still going to have substantial warming,” Olah says.
Consequently, insurance premiums have been increasing, and flood insurance coverage could be reduced or withdrawn altogether.
“In Florida, for example, there is no private flood insurance, and we may be facing a similar situation in some parts of Canada,” Olah says.
As flood insurance becomes more limited, mortgage defaults could increase. Municipal credit ratings could be adversely affected as credit rating agencies begin to examine potential liabilities for flood recovery costs.
And all of this doesn’t even consider the emotional distress that follows on natural disasters.
“The real heroes are the conservation authorities in Ontario who have done remarkable work that has prevented the kind of disasters that are occurring in the U.S.” Olah says.