Buyers and builders frustrated after being refused insurance for homes near wildfires

Buying a home in West Kelowna, B.C., should have been a happy milestone for Christine Linton, her sister and her brother-in-law. But it soon became an infuriating one.

After contacting more than half a dozen insurance companies, they still haven't been able to get coverage for their new property.

"We were very frustrated," said the Grand Forks, B.C., resident, who bought the Okanagan property with her relatives as a second home. 

The house is within 25 kilometres of the White Rock Lake wildfire. The trio took possession of the property a few weeks ago, but have been looking for insurance since July. 

"Our realtor at the time said that we may have trouble getting home insurance," said Linton. "And sure enough, even our primary insurer that we have on this house in Grand Forks would not insure the new property, and they asked us to call back in September."

Potential homebuyers and home builders in areas near wildfires are struggling to find insurance because insurers won't issue new coverage for properties or construction sites that are within a certain distance of an active blaze.

"Some agents are saying if you're within 25 kilometres, some are saying 75, and we've even heard from some that even if you're within 100 kilometres, they're not going to issue a policy," said Ranvir Nahal, owner of Sunterra Custom Homes, a construction company that builds luxury homes in the Okanagan. 

The reasoning why insurance is being withheld is that it's put in place for "unforeseen risk," explained Aaron Sutherland, vice-president for the Western and Pacific region at the Insurance Bureau of Canada.

"A wildfire placing an imminent threat to your property is not an unforeseeable risk," he said.

Putting builders in a difficult position

Three of Nahal's projects were paused this summer because insurance brokers wouldn't cover them. It makes it difficult to plan ahead and adds a lot of stress on his company, he said.

"We've got a building permit in hand, a deposit in hand, we've been working with these clients essentially designing their dream home now for the better part of a year," he said.

"We were finally about to break ground and our limiting step became that we're not able to obtain course of construction (builder's risk) insurance because of the proximity of the fire."

The financial loss that comes with that can be substantial, he said.

"Each project we're able to bill out $150,000, which is pretty regular per month. Times that by three and there's about $500,000 a month of work that's not getting billed out," he said.

The builder said he's also facing staffing shortages because workers are leaving for other regions where projects aren't paused.

Nahal has since succeeded in getting coverage for one of the sites, but another was destroyed in the White Rock Lake fire. His project in Twin Lakes is still suspended.

Real estate deals stuck in limbo

 Many people in the real estate market might be unaware that not having insurance in place could affect their purchase or sale of a home, says real estate agent Saffron Quist.

 Almost every financier requires a property to be insured before they give out funds, said Quist, who is based in Vernon, B.C.

That means buyers who can't find coverage for a house they put an offer on can face a breach of contract if their mortgage company refuses to finance them, she said.

"I think a lot of buyers and sellers are actually kind of oblivious that this could affect their purchase or sale until the closing date actually arrives," she said.

Quist said realtors are starting to include special clauses in purchase agreements that allow buyers to extend the closing date in the event of an act of nature that prevents them from getting insurance. 

But that solution doesn't always work.

Linton said that while they did have such a clause in their purchase agreement, they chose not to delay the occupation date because they had renters coming in who had already terminated the lease on their previous place and who would have been homeless if they had done that.

The renters have moved in, but the house remains uninsured.

An old issue that could become more common

Difficulty in getting insurance for homes at risk from wildfires is not a new phenomenon, said Sutherland, who represents insurers in Western Canada. But it's a problem that's here to stay, he said. 

"As our climate changes, we're seeing hotter, drier conditions lasting longer, and the wildfire risk is only likely to go up in this province," he said. 

But not much can be done for the buyers and builders currently stuck in limbo, he said, except waiting until the wildfire situation improves — which usually happens in early fall.

"There's very limited tools available right now," confirmed Carmina Tupe with the Canadian Homebuilders Association in B.C.

Tupe said builders should analyze how their projects have been affected and start thinking about solutions to mitigate future risks. For example, she suggested seeing if they could get insurance for specific components that don't pose serious fire risks, such as foundation work.

While Nahal said he expects the issue to arise again, he hopes insurance companies will offer more flexible solutions next time. 

"There could be a policy in place that allows you to go to a certain stage in a house," he said, pointing out that it usually takes about a month and a half after getting a building permit before builders bring any substantial amount of wood to a site.

He said even small compromises that would allow some construction to go ahead would be beneficial.