Every insurance policy of any kind has what are termed “exclusions” which are conditions or circumstances listed in the policy that are not covered by the policy. Exclusions are included in Indemnity Plan policies to limit exposure of the Plan to catastrophic losses and to avoid significant increases in premiums which would occur in the absence of those exclusions. In specific terms, exclusions in an Indemnity policy are there so that the plan will still have funds available to deal with other kinds of claims architects face, including claims already made against them.

A relatively recent example of a catastrophic loss is that caused by the BC “leaky condominium” situation. It had a huge financial impact on consumers and caused the BC Home Warranty Program to file for bankruptcy. Owners of the condominiums have sought in excess of a billion dollars compensation. We have seen other examples of threats which could have potentially led to catastrophic losses over the years. Some of these threats have related to materials such as asbestos, phenolic foam, ureaformaldehyde, contaminated soils and Natco clay tiles. In the case, for example, of asbestos, these threats materialized into exclusions in insurance policies.

Exclusions are frequently driven by the requirements of reinsurers. Simply put, re-insurers, insure insurance companies. Re-insurance helps spread the risk, particularly in the event of major, unexpected claims. It effectively enables the insurance company to “lay-off” risks and provide insurance which it would be unable to offer in the absence of reinsurance. For example, just as OAA members pay premiums to the Indemnity Plan for insurance, so will the Indemnity Plan pay premiums to re-insurers in exchange for an agreement to have a portion of OAA insurance company claims paid in the event of a major loss or catastrophe. To be eligible for the necessary re-insurance, the OAA’s Indemnity Plan must write policies that re-insurers will agree to back, and re-insurers won’t back policies that don’t limit or exclude the exposure of the Indemnity Plan to certain catastrophic losses. This is no different than the approach used in other forms of insurance.

Council has put in place three new exclusions which respond to developments over the last few years and which are now reflecting themselves in Ontario. This step has been taken to protect the plan, its participants, and the public.

The first exclusion flows directly from the terrorist attacks of September 11, 2001. The insurance industry could not withstand a wave of losses such as those experienced in the attacks in New York and Washington. Thus, the terrorism exclusion is a requirement of the Indemnity Plan’s reinsurers, and it mirrors policy conditions in other parts of the world. This exclusion provides that no coverage will be afforded for claims arising out of war, invasion, riots, strikes or acts of terrorism. It should be emphasized that the mandatory Indemnity Plan premiums have not been affected by any factor other than the claims experience of Ontario architects. Unlike those in the insurance industry, Indemnity Plan premiums have not increased as a result of the events of September 11, 2001.

The second exclusion involves mold. There is the potential that hundreds of actions could arise, resulting in the Indemnity Plan being unable to defend architects or pay damages for other claims. While Council has taken the prudent step of adding this exclusion, it has also established a Mold Fund. Claims already filed and those filed prior to April 1, 2002 are not subject to the exclusion. For claims filed on or after April 1, 2002, $2.5 million has currently been set aside by the Indemnity Plan to defend policy holder against mold litigation and/or pay damages (to a maximum liability for each holder of $250,000 for each claim and $500,000 for all claims reported per policy holder). While court decisions in mold cases in both Canada and the United States do not yet indicate a trend in the court’s likely view of an architect’s liability, the OAA Council will monitor this situation to see if the mold fund level requires adjustment, and the Indemnity Plan will defend architects within the limits of the mold fund. The OAA Indemnity Plan used the same approach to the asbestos claims of several years back, and no Indemnity Plan member was left undefended. The Plan also introduced a Y2K exclusion, and a corresponding fund. That threat never materialized into claims.

The existing claims regarding mold are following a pattern similar to that set by the asbestos lawsuits of the previous twenty years, and Canada is as usual following closely behind the trend toward increased litigation regarding mold that has already taken place in the United States.

Finally, Council has approved in principle a wall exclusion: This exclusion is not retroactive and only designs commenced on or after July 1, 2002 will be affected. The Plan is experiencing an alarming number of claims related to some face-sealed wall systems and there is a need to protect the Plan and participants in it for the reasons set out above. Final wording is still in development to make this exclusion as clear as possible. Full details will be available well in advance of July 1, 2002.