It will likely be increasingly difficult for home and business owners to find anyone willing to pay for basement flooding. According to the insurers’ Institute for Catastrophic Loss Reduction, “basement flooding is one of the biggest challenges facing homeowners, municipal governments and personal property insurers across the country.” Municipalities across Canada have substantial protection against civil suits for sewer backups, due to statutory immunities created by each province. At the time these laws were passed, governments explained that private property owners should protect themselves by purchasing insurance against basement flooding. However, property insurers are in business to make a profit, and can logically refuse to provide flood insurance for the properties that need it most.
Most insurance is based on a pooling of risks. This makes sense for auto insurance and fire insurance, and other risks where many people each have a small, mostly random, risk of a large loss. Each such person pays a relatively small premium, and as a result, substantial compensation is available for the very few who turn out to need it. This rationale does not work for basement flooding, precisely because the risk is not random. Flooding tends to occur in the same areas repeatedly, due to surface topography, runoff patterns, surface treatments, infrastructure, foolish planning approvals, etc. Some municipalities, such as Toronto, even publish maps of flood-vulnerable areas; see http://www.toronto.ca/water/sewers/basement_flooding.htm. These properties simply do not have the same risks as those more fortunate properties on higher ground. Naturally, therefore, they may be more expensive or impossible to privately insure against such floods.
If private insurance is unavailable, should the risk fall back on the municipality? The City of Stratford agreed to pay $7.7 million last year to settle a class-action over sewer backups in the South end of the city on July 28, 2002. The judge who certified the class action suggested that the city could be held liable for negligence because it had failed to take effective action to prevent a repetition of previous floods, which overwhelmed the sewers in the area. This sort of analysis almost obliterates the distinction between negligence and nuisance, and seriously weakens the statutory immunity that municipalities may think they have.
On the other hand, individual homeowners are no better able to bear the losses that such floods cause. Unwary purchasers may find themselves in desperate financial straits when they occur. Meanwhile, climate change is increasing the frequency, and the magnitude, of the extreme storms that cause such flooding. We should be thinking about such issues as a matter of public policy, because they will not go away by themselves.