If a tsunami hit, would you be covered?

By Michael C. Maclean, F.I.I.C., president of ICT Insurance Consulting & Training, Toronto

February, 2005 – If a tsunami were to hit your home, the damage would almost certainly not be covered under your homeowner policy.

These policies are generally available in three formats that equate to Bronze, Silver, and Gold, and are officially known as Standard, Broad, and Comprehensive.

  • Standard policies provide “Named Perils” coverage on the building and also on the contents against a specific number of listed perils.
  • Broad coverage provides “All Risks”* coverage on the building, but only “Named perils” coverage on the contents.
  • A comprehensive policy provides “All Risks”* coverage on both building and contents.

Named Perils coverage may only pay when the loss was caused by a listed peril and the conditions of that peril are met.

All Risks coverage (both Broad and Comprehensive) covers all kinds of losses unless the particular property or loss is specifically excluded. This is much better coverage, but it still does not cover every loss. It would most likely not cover damage to a car, nor, say, damage caused when the dwelling had been vacant for more than 30 days. These All Risks policies usually have more than 30 exclusions.

Most tsunamis are caused by earthquakes, and most insurance policies do not provide earthquake coverage. Consequently, there would be no coverage.

For those few who do carry earthquake coverage (almost certainly at an extra cost), there is a second problem: the exclusion that deals with water damage. Almost certainly, the conditions that apply to water damage would preclude payment based on the specific nature of the water damage caused by the tsunami.

This does not say that such insurance is impossible, but it would be very hard to find, probably quite expensive, and, at the end of the day, what are the chances of this type of loss ever happening?

*”All Risks” covers all losses EXCEPT those specifically listed on the policy as “excluded.”