By Caroline Barghout, CBC News
A Manitoba couple has filed a lawsuit claiming their insurance coverage wasn’t enough to rebuild a burned-down barn and arena used in their thoroughbred horse business.
Jane Gammon and Tom Dodds, who’ve been training thoroughbreds for nearly 30 years, opened a boarding and training centre for horses on their Brunkild property in 2001. They also built a barn and riding arena and had it insured.
But their barn and arena burned down on October 16, 2010 and they declared a total loss. The couple also lost a horse and barn cat in the blaze. Believing their coverage would be enough to rebuild their business, Gammon and Dodds put down a $13,200 deposit with a contractor. They later learned it would cost far more to replace their barn and area than the amount they were insured for.
“I thought replacement cost was replacement cost. Like we have replacement cost insurance. Someone swipes your TV. You have replacement cost, [you] get a new TV. I mean, I know it’s all different now but at the time, that’s what we thought,” said Gammon.
Replacement cost had upper limit
Their policy provided replacement cost coverage on their barn and arena to a limit of $129,000, but the couple says it would have cost $186,252 to rebuild it. And that didn’t include the $12,500 to clean up the debris left on their land after the fire.
“Basically the price that they gave us, that only was the shell. In the end, that’s all it covered. That’s uninsulated, no stalls, no electricity, no footings, just nothing,” said Dodds.
Dodds and Gammon said their broker didn’t account for the horse boarding stalls that were in the barn, or for the “footings,” a soil fill the thoroughbred trainers had lined the arena with for the horses to ride on.
“To rebuild we would have had to haul back in 18 semi loads of clean footings,” said Gammon.
The couple also didn’t have business interruption insurance.
“They could have offered us that. You could say yes or no, but they could offer it. There’s clean up costs like a rider so that that wouldn’t come out of your rebuild cost. But all that stuff, like why not just explain it?” Gammon asked.
Couple asked if they had right insurance
They have filed a statement of claim for $84,100 against MIG Insurance Group Ltd. Their insurance policy is with Red River Mutual but their broker was employed by MIG. MIG is a network of insurance brokers that provides insurance services to clients throughout rural and urban areas of Manitoba.
In the fall of 2005, Gammon and Dodds contacted Red River Mutual to make sure they had the proper coverage on their home business.
“Everybody gets their renewal every year and you look at it and you go ‘OK.’ You write the cheque to Red River or whoever. That’s it. And then we thought, how do we know? How do you know it’s the right insurance? So that’s why we asked them,” said Gammon.
Up until then, Dodds had been earning an income outside the home working as a thoroughbred trainer at the racetrack. But Dodds was planning to retire so that he could concentrate on training horses at the arena and farm he owned with Gammon. The couple wanted to be sure they would be adequately covered if anything happened to their business.
‘It was all good till it burned down.’
“I would think it’s every horseman’s worry. Barn fires are a nightmare so you always, whenever it would storm I would always look out the window down at the barn and, you know, worry like, you know you just don’t know,” said Dodds.
Dodds and Gammon told Red River Mutual they questioned their coverage because their broker had never been to their farm to do an appraisal. They say Red River told them to contact a rural broker, which they did.
Over the course of three years, they changed brokers on two separate occasions because neither came to their land to do an appraisal. Finally in 2008, they met with a broker who agreed to come to their farm to do an in-person assessment.
“He measured the buildings. He took pictures. He goes back to the office. He comes back with an amount. He’s the expert. We’re not. You go, ‘Perfect.’ And it was all good till it burned down,” said Gammon.
Insurance company defends its work
MIG lawyer Bill Gange said he is somewhat restricted in what he can say because the matter is before the Court of Queen’s Bench.
“I can advise however that MIG Insurance Group feels that it performed its duties as a broker correctly.” said Gange.
He said before the fire, Gammon and MIG discussed the values of insurance to be placed on the buildings. Gammon agreed to the values discussed.
“After the loss, the insured was compensated, and accepted the compensation, through the insurance contract,” said Gange.
“The amounts paid out were consistent with the values discussed and agreed upon by Ms Gammon,” Gange continued.
The Insurance Council of Manitoba says brokers rely on online calculators to determine the rebuild value of homes and businesses.
“They also rely on the consumer in terms of providing updated information with respect to renovations or improvements because that can, of course, impact on the replacement or cost to rebuild of a home,” said ICM Executive Director Erin Pearson.
Undervalued properties add up to billions: magazine
Pearson said the calculator is assumed to be accurate at the time it’s offered but acknowledged that there are concerns throughout the insurance industry about its limitations. The calculator can’t take into account changes in the environment, the cost of building materials or the availability of labour.
“There are lots of different things that can impact on the cost of building a home and the calculator itself is of course static and doesn’t react as quickly as perhaps the environment would like it to,” said Pearson.
According to a 2010 article published in Canada’s Insurance and Risk Magazine, Canadian Underwriter.ca, it’s estimated that homes and commercial properties in this country are undervalued by approximately $11 billion.
“SCM Risk Management Services suggests that 70 per cent of existing policies are under insured by 33 per cent, resulting in the above-cited shortfall in a variety of potential total loss scenarios,” it said.
Guaranteed replacement cost recommended
Heather Mack, director of government relations for the Insurance Bureau of Canada, says if you have guaranteed replacement cost, then your home or property is re-built even if it was undervalued.
“Consumers don’t often realize how much it would cost to repair and rebuild a home,” Mack said. “Generally in Canada, we don’t have great financial literacy. But then when it comes to insurance it’s a lot worse. If you don’t have guaranteed replacement costs, you’d have to be pretty darn exact on the rebuild and that takes a lot more work.”
Mack also said some homeowners are signing contracts without reading it entirely.
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