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‘Act of God’ exclusions in insurance policies just a myth

Canadian Prime Minister Justin Trudeau looks into a burnt out car while visiting neighborhoods devastated by the wildfire that forced the evacuation of the city in Fort McMurray, Alberta, Canada May 13, 2016. REUTERS/Jason Franson/Pool (REUTERS)

Like the persistent Fort McMurray wildfire that continues to grow, so too does the myth that a natural disaster of this scale is defined as an “act of God” and therefore not covered in homeowners’ insurance policies.

The Insurance Bureau of Canada (IBC) recently attempted to set the record straight around the misinformation and half truths that continue to swirl in the wake of the Alberta blaze that forced the evacuation of more than 80,000 residents and has caused billions of dollars in damage.

Perhaps one of the biggest misunderstandings is the commonly held belief that certain “acts of God” are not covered under home insurance policies. An “act of God” is defined as a natural event that is beyond the control of a person or corporation. Fires, earthquakes and floods are good examples. And as much as the term “act of God” gets bandied about, it is persona non grata within insurance circles.

“That issue of ‘act of God’ is a common insurance myth that comes up no matter what the disaster,” Heather Mack, director of government relations for IBC told reporters recently during a press conference addressing questions about insurance as it related to Fort McMurray.Insurers pay for fire damage. It’s got nothing to do with this ‘act of God’ term, which is actually not a term that’s used at all in property insurance. It’s not in there, full stop. It’s not an issue.”

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What is actually covered

When it comes to insurance in Canada, the word peril – not “act of God” – is what refers to the types of losses that are covered, while exclusions mean what is not covered. A peril is a chance event that is unexpected and accidental and can include fire, wind, flood, earthquake and theft, says Jim Murphy, CEO of the Insurance Brokers Association of Ontario. Most homeowners’ policies and auto insurance offer basic perils coverage.

The origin of the myth that ‘acts of God’ are not insurable is unclear,” says Murphy. “As even the most basic property insurance policies provide coverage for damage caused by lightning, fire and windstorm. These are clearly ‘acts of God’ and there is no question that coverage for damage caused by these perils is readily available.”

At The Co-operators Insurance, for example, damage from flooding and earthquakes is not covered under a typical home policy so these would be deemed exclusions unless, of course, you purchased additional coverage for these risks.

Where it comes from

While some believe the term “act of God” is more of an American expression, Michael Barry of the Insurance Information Institute (III), a consumer education organization in New York City, says it’s unlikely the phrase would appear in any U.S. property insurance policy.

“I think (use of the phrase) is more of an urban legend than anything,” said Barry.

The expression can be traced back to religious texts of the 13th century. It’s believed the term was first used in legal and insurance circles when referring to something outside of human control in 1858. Peter Simmonds' Dictionary of Trade Products says "Force-majeure, a French commercial term for unavoidable accidents in the transport of goods, from superior force, the act of God, etc." And earlier, in 1803, The Times published this legal ruling given in a court case: "By Common Law, Carriers are insurers against every loss of property entrusted to their care, except losses arising from the Act of God, or the King's enemies."