October 22, 1999

To: Works Committee and

Administration Committee

From: Barry Gutteridge, Commissioner, Works and Emergency Services

Wanda Liczyk, Chief Financial Officer and Treasurer

Subject: No-Fault Flood Grant Program; Basement Flooding Damages and Clean-up Costs

Purpose:

To report on the feasibility of creating a no-fault grant program to cover damages and clean-up costs as a result of basement flooding caused by sewer back-ups and watermain breaks, on the condition that the homeowner's insurance company has ceased to reimburse the homeowner as a result of repeated claims.

Financial Implications and Impact Statement:

This report does not recommend the establishment of a city-wide No-Fault Flood Grant Program. Were such a program to be implemented, an estimated amount of $5,500,000 will be required to cover damages and clean-up costs for basement flooding due to sewer back-ups and watermain breaks during an average year. The amount could exceed $50,000,000 for a single storm if a rainfall exceeded the current sewer design capacity.

The Chief Financial Officer and Treasurer has reviewed this report and concurs with the financial impact statement.

Recommendations:

It is recommended that:

1) a No-Fault Flood Grant Program not be established, as it would not provide any beneficial affects for the City, the cost of the program is excessive and unpredictable, and the program would be in direct conflict with the legislative requirements under the Municipal Act; and,

2) Resolution No. 91- 21 of the former North York City Council be repealed, being a public no fault grant program which provides financial assistance to former City of North York residents for damages caused by sewer back-ups and watermain breaks. This repeal would be in keeping with the harmonization of the City's insurance practices and recent legislative changes.

Background:

At its meeting on April 13, 14, and 15, 1999, City Council had before it a report entitled, "Insurance Claims Administration", dated March 11, 1999, from the Chief Financial Officer and Treasurer. The report provided six recommendations to establish the City's Insurance Claims Procedures. All of the recommendations were adopted with the exception of Recommendation No. (6)" Resolution No. 91- 21 of the former North York City Council be repealed, being a public no fault grant program which provides financial assistance to former City of North York residents for damages caused by sewer back-ups and watermain breaks. This repeal would be in keeping with the harmonization of insurance practices received in this report and recent legislative changes."

City Council amended this recommendation by referring it to the Commissioner of Works and Emergency Services and the Chief Financial Officer and Treasurer for a joint report thereon to the Works and Utilities Committee and the Corporate Services Committee, such report to address the feasibility of creating a no-fault grant program similar to the drain grant program, to cover clean-up costs for homeowners who have experienced a flood as a result of sewer back-ups and watermain breaks, on the condition that the homeowner's insurance company has ceased to reimburse the homeowner as a result of repeated claims.

Comments:

The report requested by City Council, regarding creating a No-Fault Flood Grant Program stipulated the condition that the homeowner's insurance company has ceased to reimburse the homeowner as a result of repeated claims. This specific type of information was not tracked in the current or former claims systems and as such, the number of claims that fall within this condition is unknown and cannot be estimated. Therefore, the following comments/discussions are based on basement flooding claims data regardless of the homeowner's personal insurance status.

Current Practices

The City of Toronto currently offers homeowners two different grant programs relating to basement drains and flooding damages.

1. Tree Root Removal and Grant Program

At its meeting held May 11, 12 and 13, 1999 City Council adopted a new Tree Root Removal and Grant Policy to harmonize the existing tree root policies of the former six Area Municipalities. The new City-wide policy provides:

· that in all cases, the repair of drains within City property are carried out by the City at no cost to the property owner, whether the blockage is caused by roots from a City or private tree;

· assistance for the repair of private drains only where drain blockage is the result of roots from a City-owned tree, as verified by City staff;

· assistance on a one time only basis per property on a no-fault or grant basis, to any property owner; and,

· assistance is provided in the amount of 100 percent of the invoiced cost, to a limit of $500 per property for a repair or partial renewal of a drain or drains, and to a limit of $1,500 per property for the complete renewal of a drain or drains between the City property line and the building.

The City's new Tree Root Removal and Grant Program provides financial assistance in the form of a Drain Grant to property owners for the repair of drains on private property on a "no fault" or "grant" basis. The program provides assistance and incentive to homeowners to replace drains rather than just do a repair. The program does not provide assistance for flood damages resulting from drains needing repairs.

5. Sewer - Flood Relief For North York Residents - Sewer Back-ups And Watermain Breaks

The North York No-Fault Flood Grant Program was established in 1991 to provide assistance to residents for flood damage from municipal sewer and watermain breaks. The program was implemented when case laws respecting damage from sewer and watermain breaks was changing and at best rendered unreliable outcomes. The program offers a maximum of $3,000 per claim. There are no other former municipalities which offered such a No-Fault Flood Grant Program. The recommendation to repeal the North York City Council Resolution which authorized the program is to harmonize it with the practices of the other amalgamating municipalies. During the following discussion, comparisons are made between the City's new Tree Root Removal and Grant Program and the creation of a No-Fault Flood Grant Program, similar in concept to the North York No-Fault Flood Grant Program, for basement flooding to demonstrate that the former program is beneficial and the latter is not.

Feasibility Analysis for a No-Fault Flood Grant Program

To analyze whether a No-Fault Flood Grant Program, which would cover homeowners' expenses for damages and clean-up costs caused by watermain breaks and sewer back-ups, is feasible or not, the following criteria were used:

1. potential benefits of a No-Fault Flood Grant Program;

2. cost of a No-Fault Flood Grant Program; and,

3. City's Legislative Requirements.

1. Potential benefits of a No-Fault Flood Grant Program

A comparison was made with the City's current Tree Root Removal & Drain Grant Policy, administered through Water & Wastewater, Works & Emergency Services. This policy provides financial assistance to solve drain problems, in particular, those caused by the intrusion of roots from City trees. Under the Drain Grant Policy, both the homeowner and the City benefit, especially if the homeowner decides on the complete drain renewal option. Application of the policy results in a new drain virtually trouble-free and maintenance-free for its design life. Therefore, the monies spent by both the homeowner and the City could be considered an investment.

The creation of a No-Fault Flood Grant Program would differ vastly from the Drain Grant Policy. Essentially, monies would only be spent on basement damages & clean-up costs. The grant process does not contribute to solving or ameliorating either the sewer back-up or the watermain breakage problems.

In this regard the City has been implementing several programs to improve the water & wastewater systems, such as:

· Replacing deficient sewers with larger pipes;

· Separating sewers in combined sewer areas;

· Installing relief sewers;

· Installing detention tanks and backflow preventors/valves;

· Implementing a downspout disconnection and rain barrel program;

· Requiring the development and implementation of stormwater management plan for new development and redevelopment projects;

· Conducting dye testing of sewer drains to ensure they are connected to the appropriate sewer system;

· Providing grants for drain repairs and renewal;

· Conducting a watermain corrosion study to develop a method of predicting watermain breaks;

· Implementing a strategy to replace 'old' watermains and watermains with poor break records; and

· Providing cathodic protection to reduce external corrosion of watermains in order to extend the life of the pipes and to reduce breakage.

A No-Fault Flood Grant Program could be considered desirable in terms of financially assisting homeowners for the following reasons:

· Not all homeowners or tenants are aware of or have insurance coverage for basement flooding damages caused by watermain breaks or sewer back-ups;

· The homeowner's insurance policy deductible may be higher than the basement damages, and;

· Homes with chronic basement flooding problems may be offered only limited coverage or may be denied coverage because of repeated claims.

Currently, all claims involving flooding damages and clean up costs due to watermain breaks and sewer back-ups are being processed by the City's insurance adjusters in accordance with the legal liability provisions of the City's Comprehensive General Liability Insurance Policy. The Insurance & Risk Management Section, Treasury & Financial Services, Finance supervises this process. When adjudicating these types of claims special consideration is given to homeowners who experience repeated basement flooding problems and do not have insurance. In such cases, if the homeowner has not contributed to or caused their damage and if City staff had knowledge that the sewer line was faulty or it had insufficient capacity, negligence might be attributed to the City and consequently claims for such damage are usually honoured.

2. Cost of the No-Fault Flood Grant Program

In a one-year period, the City processed 527 insurance claims, which directly related to watermain breaks or sewer back-ups. The total amount reserved to pay these claims was $2,766,104.00, the average claim being worth $5,248.77. It should be noted that 387 claims have been closed during this one-year period with only 30 claims being paid. The remaining 357 claims were denied based on no evidence of negligence. Prior to the amended Municipal Act, the City would have been legally liable for all claims presented. It is believed that the current number of claims presented to the City is low because the personal homeowners' insurance companies are aware of the amended Municipal Act and therefore do not present claims unless they believe there is evidence of negligence.

On an average year, the Water & Wasterwater Division of Works & Emergency Services receives 960 calls due to sewer back-ups, 20 calls for watermain breaks and 50 calls due to tree root problems, totaling 1,030 calls. At an average claim of $5,248.77, based on 1,030 calls, the annual cost of the program would be approximately $5,500,000.00, exclusive of administration cost.

It should be noted that during one large storm, the intensity and duration of a rainfall could exceed the City's five-year design capacity for storm sewers. The number of complaints due to sewer surcharging could be 10,000 or more, or ten times that for the average year. Assuming the limit for claims is set at $5,248.77, the cost for that one storm could exceed $50,000,000.00.

Were a No-Fault Flood Grant Program established, payments would be made to homeowners on an exgratia basis without regard for an assessment of legal liability. Consequently, such payments would be made without regard for the terms and conditions of insurance policy wording. In addition, City staff resources would be required to administer the program. In consideration that a No-Fault Flood Grant Program is not an insurance related concept and that staff familiar with the City's sewers and watermains would be needed, the administration of such a program should be with the Water & Wastewater Division. It is estimated that two clerical positions would be needed to process these applications. Currently, there is no staff in the Water and Wastewater Division to administer this program.

3. City's Legislative Requirements

City Legal have advised that a new standard of care for municipalities is found in the amended s.333 of the Municipal Act which received Royal Assent on December 19, 1996. Under the amended legislation, a municipality is no longer liable in nuisance for escape of water or sewage from municipal water or sewage works. Nuisance means there does not have to be any proof of wrongdoing on behalf of the City. The mere fact that a water pipe broke or a sewer backed up was previously enough to warrant a responsibility for the municipality to pay. For several years in the mid 1990's, municipalities lobbied the provincial government to amend the Municipal Act restricting a municipalities' legal responsibility only to negligence and this was achieved. A municipality would be found negligent if it did or omitted to do an act, which caused damage. (e.g. unnecessary delays in responding to a flood complaint.)

It is therefore recommended that the creation of a No-Fault Flood Grant Program would not be feasible for the following reasons:

1. the City would not receive any beneficial affects;

2. the cost to fund this program would be extremely high; and,

3. the program would be in direct conflict with the City's legislative requirements under the Municipal Act.

4. North York No-Fault Grant Program - Resolution 91-21 of the former North York

Subject to the adoption of Recommendation No. 1 of this report it is recommended that the North York City Council Resolution 91-21 authorizing the Flood Grant Program be repealed.

As mentioned earlier, the standard of care for municipalities is found in the amended s. 333 of the Municipal Act, in which a municipality is no longer liable in nuisance for escape of water or sewage from municipal water or sewage works. In consideration of amended legislation and to clarify the City's obligation, the North York No-Fault Grant Program is no longer necessary. In addition, most homeowner's insurance policies now include or make available coverage for such perils as flood sewer back-up and drain blockage. Repealing the North York City Council Resolution will ensure consistency in the handling of such claims throughout the amalgamated City of Toronto.

Conclusions:

A No-Fault Flood Grant Program to cover clean up costs as a result of basement flooding caused by sewer back-ups and watermain breaks for Toronto homeowners should not be created because the funding required would not improve the condition of sewers and watermains thus providing a beneficial investment for the City. The City should continue to invest in the implementation of its ongoing water and wastewater improvement programs. In addition, the City should continue to harmonize its claims practices through the repeal of the North York Flood Relief Grant Program and ensure consistency with legislative requirements.

Contact:

Wayne Green, Director, Quality Control and System Planning, Works & Emergency Services

Tel: 392-8242

E-mail: wayne_green@metrodesk.metrotor.on.ca

Len Brittain, Director, Treasury & Financial Services, Finance

Tel: 392-5380

E-mail: lbrittai@toronto.ca

Jeff Madeley, Manager, Insurance & Risk Management, Finance

Tel: 392-6301

E-mail: jmadeley@mta1.metrodesk.metrotor.on.ca

Barry H. Gutteridge, Commissioner Wanda Liczyk

Works and Emergency Services Chief Financial Officer and Treasurer

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