Growing popularity of laneway homes raises questions about adequacy of insurance

Soaring real estate costs are pushing some Canadian cities to embrace laneway housing, touted as the future of affordable living in urban centres.

But as the properties become more popular and balloon in value, questions are beginning to arise about whether current insurance practices are sufficient.

Home insurer Square One Insurance says it has been fielding so many recent calls about laneway homes _ most of them in Vancouver _ that it’s started offering a separate product created specifically for the structures.

Daniel Mirkovic, the company’s president and chief executive, says in the past, laneway homes or coach houses were often $50,000 conversions of detached parking garages created by homeowners to house their adult children.

“Now, because of the high price of real estate, the whole concept of laneway housing has changed,” Mirkovic said. “When you’re looking at a laneway home that the owners have invested $200,000 or $300,000 dollars to build, that’s a very significant investment.”

Converting a back alley parking garage into a residential structure is one way for homeowners to offset the cost of pricey real estate by generating rental income. However, not all Canadian cities allow for laneway homes to be built.

Vancouver is a notable exception. The city has issued over 1,000 permits for laneway homes since 2009. In Calgary, city officials are launching a pilot project that will allow laneway homes to be developed along one of the city’s streets.

As square footage in Canada’s hottest real estate markets becomes pricier and developers look for new ways to squeeze housing into tight spaces, laneway homes are likely to grow in popularity. That could force insurers to rethink their policies.

Currently, most insurance companies _ including Aviva Canada, Intact Financial and TD Insurance _ cover laneway homes under the same policy as the main property and don’t offer a separate insurance policy for the structures.

Mirkovic says that could be problematic in certain circumstances _ for example, if a natural disaster occurs that affects both the main structure and the laneway home. In the aftermath of such incidents, building replacement costs may soar due to a phenomenon referred to as “post-event inflation.”

In that situation, Mirkovic says, “the demand to build new homes or rebuild homes has gone up dramatically because there are thousands of people who need to rebuild their homes, and the supply is low. There’s only a certain amount of building supplies readily available; only a certain amount of contractors who can build homes.”

A home that cost $300,000 to build could cost $500,000 to rebuild. Typically, the insurance policy would cover the difference _ but in the case of a laneway home, it might not, Mirkovic says.

“If you’re insuring something as a detached structure you only get coverage up to the limit specified, which might be up to $300,000, but if it actually costs $400,000, you’re out of pocket for the extra,” Mirkovic said.

There could be drawbacks, however, such as two deductibles instead of one. In some instances, premiums may be higher as well, Mirkovic said.

Mike Shepel recently opted for Square One’s laneway housing package to insure a rental property he purchased in Vancouver. Knowing that replacement costs are guaranteed to be covered in the event of a disaster such as an earthquake provides him with security, Shepel said.

The physician said he plans to use the same product to insure his second rental property _ another laneway home _ as well.

“They’re really cute little places,” Shepel said. “It’s a unique way to get more homes into the community ? It really does feel like a small, little comfy cottage, where you feel more independent.”


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Home remodeling? 9 things to know about insurance coverage


As the weather improves, many homeowners start planning major remodeling or renovation projects. According to Statistic Brain, in the next two years 26% of homeowners plan a bathroom renovation or addition and 22% plan a kitchen renovation or addition.

However you choose to remodel, keep this in mind: The homeowner, the general contractor and the subcontractors—plumbers and electricians, for example—all need insurance coverage.

Review your homeowners insurance

Contact your home insurance carrier or broker to confirm whether your policy covers your home and property while it’s being remodeled. For example, if you have to move your furniture out of the rooms that are undergoing renovations, consider getting a storage container to put in your driveway. I rented a 40-foot unit when I added a second floor to my single-story ranch and filled it with furniture and everything from my attic.

Your homeowners policy should cover the contents in the container, but confirm the coverage with your broker. If you don’t have room for a container on site and you put your belongings in an offsite storage unit, you may need a separate policy.

If you’re planning to do the work yourself, your first call should be to your broker. Some remodeling projects if not undertaken correctly may void your homeowners policy.

Make sure the contractor is licensed and bondedAfter you’ve selected a general contractor (GC) but before you sign a contract for the project, be sure that the GC is licensed and has a surety bond. If the GC can’t finish the job for some reason—illness or bankruptcy, for example—the surety bond will cover any financial losses the homeowner incurs in getting the job finished. Your contract with the GC also should agree that all the work will be done according to current building codes and all permits will be obtained.The GC is responsible for property damage, injuries on the job site and negligence in workmanship, which should be covered by the GC’s general liability and worker’s compensation insurance. Ask to see the certificates and check that the coverage will be in effect the entire time that work is being done.“This is the biggest mistake homeowners make,” says Alex Totino, president of ABC General Contractors, Stamford, Conn. “Only one out of 20 homeowners has ever asked to see my insurance certificate. Most are focused only on the price of the job.”Confirm the contractor’s liability coverage

Many contractors have general liability (GL) insurance designed specifically for remodelers, which covers the GC for accidental injury to someone other than a worker or himself (many GCs are small businesses, operated by their individual owners with a few workers). For example, a delivery driver may trip over the GC’s materials and be hurt in your driveway. The GC is responsible for that injury, not you.

Generally, the GC’s liability policy excludes coverage for tools and equipment. The GC and the subcontractors should speak with their brokers about the best way to cover equipment and tools, which can easily be damaged, lost or stolen. In one case the GC’s employee left an expensive, new hammer in the wall between the studs and covered it up with dry wall. No one knew what happened to the hammer until three years later when the GC worked on a project for the same homeowner and found the hammer. (Yes, it happened on one of my remodeling projects.)

Buy a builder’s risk policy
Generally, building materials and equipment belonging to the GC or subcontractors aren’t protected from theft by your homeowners policy. Ask your broker whether you should buy a builder’s risk policy for the length of time that the construction is ongoing. This policy would cover any of the construction equipment or materials that are left on your property before they’re installed. With the high cost of copper, thieves target construction sites, looking for copper plumbing pipe, for example.The contractor’s GL policy also covers damage to your existing property, but not any new work the contractor does. You may be enclosing a deck to add a new room, for instance, and the new electrical system malfunctions after the electrician installs it, causing fire damage to both the existing house and new space. In that situation, the GC’s liability policy covers damage to your old home, but not the new addition, even though the GC is liable for damage to the addition as well.A builder’s risk policy covers situations like this one, and makes sure that the project is completed. The GC or the homeowner can purchase the policy; however, the named insureds usually include the homeowner, the homeowner’s mortgage company, the general contractor, the subcontractors and the lender if the project is being financed. Be prepared: Determining the proper coverage and policy may require several conversations with brokers and carriers as well as lenders.
Insure commercial vehicles and equipment
Most GCs and subcontractors drive commercial vehicles that are designed to carry their equipment, materials and tools. They also may have dump trucks or other vehicles they use to bring supplies to the site and haul away debris. These vehicles require special insurance coverage, primarily for tools and equipment stored in the trucks, and state law may require that only someone with a commercial driver’s license can operate them.The insurance policy should cover vehicles when they’re stored at a construction site as well as on the contractor’s premises. My contractor left his truck with tools and paint in my driveway for several days because it was more efficient to have his workers come directly to the job site. The truck was always locked and my property is fairly secure, but theft and vandalism are known risks. The contractor’s commercial vehicle insurance policy covered this situation.
Confirm subcontractors’ insurance
You also should confirm that the subcontractors carry workers’ compensation coverage of their own or are covered by the GC’s policy. If a subcontractor is injured on the job at your site, you don’t want to be liable for the injuries.Each subcontractor should carry its own liability insurance, and many policies are designed specifically for the kind of work the subcontractor does and the risks from that work. The GC should require the sub to name the GC as an additional insured on the sub’s policy. This allows the GC to speak with the sub’s insurance company directly in case of a claim. As the homeowner, you should ask the GC about the subcontractors’ insurance coverage and ask to see coverage certificates if you have any doubts.Totino says that even when homeowners ask about his insurance, they fail to ask about insurance for the subcontractors. Totino makes it a practice to include current insurance certificates from his subcontractors along with his own to show the homeowner. If for some reason the subcontractor doesn’t have its own insurance, Totino arranges to provide the necessary coverage.Even though the GC may have worked with the subs for a long time on many jobs, accidents can happen. The GC’s contract with the sub should include a “hold harmless” clause that protects the GC from having to pay for damage caused by the sub’s mistake or carelessness. The contract also should include an indemnification clause, in which the subcontractor acknowledges that it will be responsible for any damage it causes.
Determine adequacy of policy limits 
Adequate insurance coverage includes the limits of the policy, not only whether there is a policy in place. General liability limits vary, but most general contractors carry a $1 million limit. Depending on where you’re located, and the size of the project, this amount may not be enough.As the homeowner you should review your policy limits as well. Are the limits for bodily injury and property damage high enough to cover the risks from your remodeling project? Do you and the GC each need an umbrella policy? It’s not uncommon for injured workers to file claims against the homeowner and the GC.
Confirm completed operations coverage 
Completed operations coverage provides insurance for things that can go wrong after a job is done. For example, in my second floor addition, the plumber installed a bathroom without insulating pipes located in an outside wall and above a garage. When the pipes froze the next winter, the contractor had to open walls, repair frozen, burst pipes, add insulation, and repair and repaint the walls. The contractor also installed a heater in the garage to mitigate the risk of future frozen pipes.
Consult your broker
There are so many variables to insurance coverage for home remodeling projects, some mandated by state law, that you and the GC should consult your brokers before starting the project. The GC can also consult the local remodeling association to get the best advice on what insurance he needs and is available for his business.As the homeowner, remember to speak with your insurer about increased coverage for the value of your property after it’s been remodeled. A two-story colonial is worth much more than a single-story ranch-style house.As for surviving the project itself? Maintain your sense of humor and expect things to go wrong. But as long as you have faith in your contractor—and adequate insurance coverage—it will turn out fine.Do you have your own stories of remodeling insurance claims or coverage issues? Please share your advice and anecdotes with us in the comments section.
5 Reasons Why Your Home Insurance May Be Going Up

5 Reasons Why Your Home Insurance May Be Going Up


You haven’t filed any claims, so why is your home insurance going up? It’s a common question that boils down to insurance trends. Insurance rates are based off more than just your personal claims history. They also take into account your company’s claims experience and the types of claims they commonly deal with.

Here are five reasons why your home insurance may be going up—and one easy way you can save on your home insurance.

1.    Worsening Weather Conditions

Flooding. Winter storms. Freezing rain. Downed trees. Canadian weather has no doubt become more severe over the past few years.  This means insurance companies are paying out more than ever for weather-related claims, an expense that is passed on to all insurance policyholders.

To put it in perspective, the 2013 ice storm in Toronto caused more than $200 million in insured losses, while flooding in Alberta cost $1.7 billion. In total, weather was responsible for $3.4 billion worth of insurance payouts in 2013.  In fact, Intact reports that between 2006 and 2012, “the amount of insurance damage resulting from extreme weather in Canada increased by over 650 per cent.”

Insurers have responded not only by redistributing some of these costs among all policyholders, but also by looking into or changing the coverage offered for weather-related claims. Homeowners are advised to carefully review their policies to learn what is and isn’t covered in regards to weather.

2.  Bigger, Better Homes

Homes are getting bigger. According to the Canadian Mortgage and Housing Corporation, homes have almost tripled in size from an average of 800 square feet in 1950, to 2,300 square feet in 2005. These days, homes average around 1,900 square feet.

Your home insurance is not based on your house’s market value. It is based on the cost of rebuilding and replacing your house. Basically, the bigger the home, the higher the replacement value which in turn translates to higher insurance premiums as well.

In addition, many people are now installing more high-end fittings. The current trend in granite countertops, for example, costs much more to replace than the old types of countertops.

3.    More Contents

The same goes for contents. Bigger homes often require more furnishings. Add to this the popularity of big ticket items such as media equipment, wine cellars, and finished basements, then your contents are going to cost more to replace, so your insurance is going to cost more as well. It is not uncommon for people to have more than one television and more than one computer, laptop or tablet, and top of the line appliances and household furnishings that all add up.

4.    Finished Basements

Finished basements are actually a relatively new phenomenon. It used to be that basements were a place for laundry or pantry storage, but now basements operate as extensions of our living spaces. People are putting more money than ever into their basements. HGTV quotes the average basement remodel at $61,303. This adds value to a home. It also makes basements and the contents more expensive to replace/repair in the event of a claim.

Basements are actually a large contributor to home insurance claims, as water damage can ruin media and entertainment rooms, expensive flooring, and even living spaces. Homeowners are advised to take action against basement flooding by installing sump pumps and taking other precautions to minimize risk, such as not storing expensive technology close to the floor. If you plan to finish your basement, make sure you address all problems with moisture first.

5.    Old Infrastructure

Aging infrastructure is an increasing problem contributing to sewage back-ups and basement flooding. Robert Tremblay, research director at the Insurance Bureau of Canada, told the Globe & Mail that claims for sewage back-ups have doubled in the past 11 years, something insurance companies are now factoring into their risk assessments. The Canadian government has committed to putting $53 billion into infrastructure over the next 10 years, but in the meantime sewage back-up is still a risk for homeowners across the country.

Homeowners should note that sewage back-up protection isn’t automatically included in a home or tenants insurance policy. It is actually an add-on offered by many insurance companies for an extra cost.



Home Insurance costs a small used car every year

Home Insurance costs a small used car every year

Foolish us: We bought a house. We should have been thinking about insurance, because, a few weeks in, I never want to have to think about insurance again.

Short version: We went to our insurance agents to insure the new place, and they offered to take it on for close to triple what we pay now, the equivalent of the price of a small used car every year.

Now, insurance costs are going up generally; anyone who pays the bills has been noticing that, even if you’re lucky enough to have no claims, the tab keeps rising and rising.

The industry says the increased costs are the result of extreme weather connected to global warming. Storms are going to be a lot more violent; there’s going to be more wind, stronger wind and heavier rain; the rain will also fall in shorter periods (translation: Flooding).

And that means more costs for insurance, you see.

Well, we own nothing on a flood plain.

That being said, all the rain in the world should make not one whit of a difference to my insurance. Here’s a snippet from a major Canadian firm’s website: “The most common exclusion under a home policy that would be considered an ‘Act of God’ is a flood. No insurance company in Canada offers flood insurance under a home policy.”

Perhaps, we thought, another agent will solve the problem.

Like the ones who were already insuring the house we bought.

Hallelujah! A price similar to the old house, only 10 per cent higher.

Finally — insurance for the house.

Ah, but then throw in the complication of a summer cabin. (In Nova Scotia, a cottage. In New Brunswick, it would be a camp.) Properties that are well outside St. John’s can be found for reasonable — sometimes extremely reasonable — prices.

Insuring, them, though …

Having escaped the price-of-a-small-car home quote, imagine my surprise at finding that insurance company No. 2 would be delighted to insure the summer place as well, but only after setting a replacement value for the place. They determine the value based on square footage and age — and, what do you know, they value the spot at more than three times what it actually cost to buy. Meaning its insurance will be three times what it is now. (Echoes of the first insurance company ring in my ears.)

No problem, says I, let’s just insure it for the purchase price.

Insurance company No. 2: No. We don’t do that.

I resist the urge to say: “I accept your offer. Pay me more than three times what I paid for the place, and it’s yours. I’ll throw in the mower free.”

I do point out that I could buy four vacation properties for what they have valued the existing one at.

Back to insurance company No. 1: Will you keep the insurance on the cabin? No, we won’t insure your vacation property if you don’t pay a small car for the main house, too. Any way you slice it, and everywhere you go, we want the price of a car.

I’m still looking.

Disclaimer: No adjusters were injured in the writing of this column. No matter how much I wanted to injure a few.

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