When Sally Richard decided to take advantage of a free home insulation program through Efficiency Nova Scotia, she didn't expect it would require her to spend $3,700 to satisfy her insurance company.

But that's what happened when the unfinished basement of the Londonderry, N.S., woman's home was insulated with a spray polyurethane foam that was then covered with a spray-on flame-retardant paint. Her insurance company, Kings Mutual, insisted she cover the foam with a wall.

"It is very frustrating to know that you've spent all that money just to cover up something that you thought was free," said Richard.

Efficiency Nova Scotia told Richard, 76, it would reimburse her for the cost, but not before the situation created a lot of stress for her about a program that is supposed to be stress-free.

'I was shocked'

Richard applied for and was approved for free home energy upgrades through Efficiency Nova Scotia's HomeWarming program, which is funded by the province as part of a long-term plan to upgrade low-income homes.

Efficiency Nova Scotia took care of all the details, sending an energy auditor to her home, recommending the best way to make her home more efficient and then selecting the contractor to do the work.

"One of the things he [the auditor] thought that we should have was [spray] foam insulation in our [unfinished] basement," Richard said.

She says she asked the installer whether the foam was a fire hazard, but was told it was safe because it was protected by a thermal barrier of fire-retardant spray. Thermal barriers are designed to slow down a fire and give homeowners an opportunity to escape a blaze.

Sally Richard's Londonderry, N.S., home. (CBC)

Richard said the insulation made a big difference and she was pleased with the result — until her insurance company, Kings Mutual, paid her a visit to ensure her home was eligible for coverage.

She was told the flame-retardant intumescent paint used on the insulation was not acceptable to the company as a thermal barrier, and in order to maintain her coverage, she would have to put up a physical barrier of studs and drywall.

"I was shocked," she said.

When she asked why the work was needed, she was told the company has found instances where the flame-retardant paint chipped and did not provide adequate coverage of the insulation. She was told that could lead to a fire hazard.

The green material is the spray foam insulation applied to Sally Richard's basement, and the white material is the spray-on fire-retardant paint. (CBC)

Even though it was an unexpected expense, Richard went ahead with the work.

"I thought, 'What is money compared to a life?'" she said.

Efficiency Nova Scotia will pay extra cost

The bill came to $3,700.

After CBC News contacted Efficiency Nova Scotia, the organization called Richard and asked her to submit her receipts. She has since been told she will be fully reimbursed for the expense.

"They've been very good about it," she said. "I was grateful to know they are going to look after that."

Efficiency Nova Scotia service delivery manager Sarah Chiasson said she is only aware of one insurance company — Kings Mutual — that will not insure the flame-retardant spray.

Sarah Chiasson is Efficiency Nova Scotia's service delivery manager. (CBC)

She said safety is the top priority of the organization and "the last thing we would want to do is cause any of these homeowners any stress or safety concerns."

Chiasson said the organization and its contractors are responsible for ensuring all upgrades are safe and comply with the building code, but at the same time she recognizes "this insurance provider is within their right to decide whether or not to insure these upgrades."

Changes made to alert participants

She said approximately 10 others Kings Mutual customers are in the same situation as Richard, and Efficiency Nova Scotia will work with each of them for "a personalized solution." Chiasson asks anyone with a similar problem to contact Efficiency Nova Scotia.

The organization has taken steps to prevent the same issue in the future by asking participants to check with their insurance company before having the insulation installed, Chiasson said.

"It is noted in some of our forms, but we're making it more explicit. We've put it on our website, we're ensuring it's in all of our forms and we're ensuring our partners mention it when they're in the home."

Sally Richard stands in her basement, which has been insulated with polyurethane spray foam covered in flame-retardant paint. Her insurance company insisted she cover the foam with a physical thermal barrier.

Kings Mutual sent a letter to its customers about its decision not to cover homes with polyurethane foam insulation that have a flame-retardant spray as a thermal barrier.

The company lists acceptable barriers as "a minimum of half inch plaster, gypsum board, plywood, hardboard, insulating fibreboard, particle board, Oriented Strand Board (OSB) or wafer board."

It says "fire-retardant sprays have a tendency to crack and peel, and are not acceptable to Kings Mutual."

Company keeping policyholders 'safe'

Kings Mutual loss prevention supervisor Russell Acomb said while the company recognizes that the fire-retardant intumescent paint spray is acceptable as a thermal barrier under the building code, his company is insisting on a physical barrier.

"As an insurer we can go above [the building code], and Kings Mutual's philosophy has always been life safety first," he said. "We take pride in the fact that we do everything we can to keep our policy holders safe."

CBC News contacted a sampling of other insurance companies to ask whether they accept fire-retardant sprays as a suitable thermal barrier for spray polyurethane foam, which is flammable.

Wawanesa and Aviva did not answer our question, while Intact simply said, "We will require them to comply with building codes."

Foam contractors concerned

The Canadian Urethane Foam Contractors Association (CUFCA), which promotes the safe use and installation of spray polyurethane foam insulation, has written to Kings Mutual outlining its concerns about the company's policy.

"It's inconsistent with the building code," CUFCA spokesperson Andrew Cole told CBC News, adding there are a number of spray-on flame-retardant paints that have been approved for use as an "alternate solution," meaning they have been tested and found to comply with the National Building Code.

Matt Covey is Halifax Fire's prevention division chief. (CBC)

Halifax Fire prevention division Chief Matt Covey said some spray-on flame retardants have been tested and have demonstrated performance as a thermal barrier comparable to more common products like drywall.

Covey said as long as the tested flame-retardant spray is installed by a licensed company and installer, it would be considered safe.

As for Kings Mutual, it makes no apology for requiring a physical barrier.

"We can rebuild buildings. We can't replace lives," Acomb said.

Halifax Fire used a blowtorch to ignite a piece of spray foam insulation, which burned slowly. (CBC)