Flooding and water damage are common causes of loss. Flooding may be due to heavy rains overflowing creeks, rivers, or dams, snow melt, or hurricanes. A property doesn't have to be on the coast in order to be at risk of flood damage, as floods can happen anywhere. As we head into hurricane season, we have put together a list of some of the questions we have received over the years regarding flood damage and coverage.
Will endorsement provisions regarding scheduled property override the flood exclusion on the policy? This week's Q&A says it won't override scheduled farm equipment. But what if it was scheduled personal fine arts. In most cases scheduled fine arts can be written as a separate policy from the homeowner policy but some companies insist it be a rider. How would your answer to this question change if it was scheduled personal fine arts.
New York Subscriber
ANSWER:
It's all going to depend on the actual language found in the endorsements and the policy. If the endorsement has the standard "all other provisions apply" then the policy provisions concerning anything not addressed in the endorsement will prevail. In the ISO schedule, the HO 04 61, the form states: This coverage is subject to the: 1. Definitions; 2. Section I – Conditions; and 3. Sections I and II – Conditions; in the policy and all provisions of this endorsement. Any deductible stated in this policy does not apply to this coverage. So while certain property is scheduled and covered for certain perils, the endorsement clearly states what parts of the homeowners policy prevail over the endorsement. In this case, the conditions sections apply, and those involve duties after a loss, deductibles, cancellation provisions, etc.
In this situation the endorsement has no exclusion for water damage, and Section I Conditions and Sections I and II Conditions do not contain any exclusions, so there would be coverage. But that's looking at the ISO forms; if you're looking at different forms they may be worded differently, and the answer could be different depending on the forms involved. It's all a matter of what the policy language actually says.
We have a claim situation where there was hurricane damage, but the premises also flooded. The insured claims the damage is from the hurricane, but the insurer says it was from flooding. How is this dispute resolved?
Puerto Rico Subscriber
ANSWER:
In such cases, you need to look at the damage and the facts of the loss. Did wind from a hurricane damage the roof and let water into the building? That is not flood damage and would be covered under the commercial property policy. However, if the hurricane caused water to rise up around the the building, enter it, and damage the floor, walls and business personal property, that is probably flood damage.
You want to look at the wording of the exclusion itself – the insurer has to prove the exclusion.
The standard CP 10 30 Special Causes of Loss water exclusion is as follows:
(1) Flood, surface water, waves, including tidal wave and tsunami, tides, tidal water, overflow of any body of water, or spray from any of these, all whether or not driven by wind (including storm surge);
(2) Mudslide or mudflow
(3) Water that backs up or overflows or is otherwise discharged from a sewer, drain, sump, sump pump or related equipment;
(4) Water under the ground surface pressing on, or flowing or seeping through:
(a) Foundations, walls, floors or paved surfaces;
(b) Basements, whether paved or not; or
(c) Doors, windows or other openings; or
(5) Waterborne material carried or otherwise moved by any of the water referred to in Paragraph (1), (3) or (4), or material carried or otherwise moved by mudslide or mudflow.
It's entirely possible that you have damage both from a hurricane and from a flood; you would need to determine what caused what damage. Timing is important – did strong winds and rain come through an area first, so the roof was damaged and rain entered the building for several hours before floodwaters surrounded and damaged the property, or did floodwaters arrive first, and did wind and rain occur later? The weather service may be able to give you information as to what happened and when, if needed.
If you have further questions please let us know. Without more detail, we can only address this in general terms.
You may find the following articles helpful:
When covering scheduled farm property would the AAIS FO-360S Ed 11.99 supersede the Water Damage exclusion for flood on the AAIS FO-20 Ed 1.0 ?
The Fo-360S has the phrase All other "terms" of the policy apply and "terms is defined on the FO-6 Ed 1.0 as follows:
"Terms" means all provisions, limitations, exclusions, conditions, and definitions that apply to this Farm Coverage.
Pennsylvania Subscriber
ANSWER:
Endorsements modify the policy provisions to some extent for the particular property or peril being addressed, be it scheduled property, extended or restricted coverage, etc. Most endorsements state that all other policy terms apply, so that any provisions beyond what the endorsement specifically addresses still apply. For example, an endorsement may provide increased limits for other structures because the insured has a very fancy garage and gazebo. Coverage is increased for Coverage B, but the other policy provisions concerning exclusions and perils still apply. In your case, while the endorsement does have specific exclusions, what it does not do is state that the exclusions in the endorsement replace the exclusions listed in the policy. If the endorsement said that, then it would override the water exclusion. However, the exclusions in the endorsement do not replace the policy exclusions, so those exclusions still apply.
Our client owns a strip mall which was damaged by a flood. He was insured through the National Flood Insurance program for building damage only. His tenants' property was not damaged by the flood. However, it will need to be moved around, probably within the building, and covered to protect it during the repairs to the building.
It is our position that the cost of protecting the tenants' property from damage during insurance repairs to the building should be covered under the building owner's flood policy. The insurance company is taking the position that these costs are not covered. It seems to us that the cost of necessary preparations to protect any property (the landlord's or the tenants') is as much a part of the repair costs as the actual repairs themselves.
If the cost of protecting the tenants' personal property is not covered under the building's flood policy, would it be covered under the tenants' flood policy, even though the tenants' personal property suffered no damage?
Please give us your opinion.
Missouri Subscriber
ANSWER:
If the contractor you hire to repair the building damaged your tenants' property in the course of his or her work, he or she would be responsible to the tenant for the damage. The contractor, therefore has a responsibility to protect the tenants' property from damage during the repair of the building. The contractor's cost of providing this protection is as much a cost of doing business as is buying the supplies to make the repairs.
Since the cost of protecting the tenants' property is a cost of your contractor's doing business, it should be figured into the total cost of repairing your building. As part of the cost of repairing your building, the cost of protecting your tenants' personal property is covered under your building's flood insurance policy, because your contractor could not proceed with repairing the building without taking steps to protect the tenants' property.
In answer to the second part of your question, covered property normally must suffer insured damaged to trigger the policy. The standard flood insurance policy issued under the National Flood Insurance Act does provide coverage for the expense of moving personal property out of a flood harm's way to protect it; but in your case, the flood has come and gone with the property suffering no damage. Since there was no flood damage to the tenants' personal property, their flood policy would not cover the cost of protecting the property while the building is being repaired.
QUESTION:
We're receiving several calls on this incident from worried residents in Louisiana. Does the flood policy provide coverage for floodwaters contaminated by oil, or is the oil excluded as a pollutant? What about increased costs in removing the oil?
Florida Subscriber
ANSWER:
The NFIP flood policy has no pollution exclusion for damage to the property from oil in the water; so if oily water comes in and the water is covered, so is the oil in the water. Even if the oil costs more to remove or makes an otherwise repairable home a total loss, the flood policy is going to provide coverage. The writers of the policy had not imagined something like the current situation in the Gulf.
QUESTION:
We have a flood claim on a property that has suffered water damage to both the dwelling and contents. The policy has coverage for the dwelling and also has coverage for the contents.
The contents are being restored to pre loss condition and will be put in storage until repairs to the dwelling is complete. Is the cost of the storage covered under the policy?
Texas Subscriber
ANSWER:
The flood policy pays to relocate property to protect it from flood or the imminent danger of flood. The limit is $1,000 and the coverage applies for forty-five days, but the property must be moved before the flood occurs. The exclusions section states that the policy only pays for direct physical loss from flood; additional living expenses, loss of access to the property, and loss of use of the property are not included. Therefore, the cost to store property until the dwelling is restored is not covered. The property is not relocated to prevent damage from flood, it is simply being stored until the property has been repaired.
QUESTION:
On the ISO Flood Coverage Endorsement Form, CP 00 10 10 12, does the form intend to cover:
Water under the ground surface pressing on, or flowing or seeping through: foundations, Walls, Floors, or paved surfaces, Basements, doors, windows or other openings.
That is, is it picking up that which would be excluded on the CP 10 30 10 12 exclusion g. water (4)?
Minnesota Subscriber
ANSWER:
The coverage provided under CP 10 65 does not cover everything that is excluded under g. Water (4) of CP 10 30 10 12. The flood coverage endorsement does not provide coverage for water under the ground that seeps through doors, windows or other openings. Also, under the definition for Water damage in CP 10 30, it specifically states that …"there is no coverage for loss or damage caused by or related to weather-induced flooding which follows or is exacerbated by pipe breakage or cracking attributable to wear and tear". There is no coverage provision within CP 10 65 that would provide coverage for this type of situation.
Since there is no definition of 'flood' in either of these forms, the courts would rely on the standard definition. In relation to your question, Merriam Webster defines flood as follows:
1. a rising and overflowing of a body of water especially onto normally dry land; a condition of overflowing;
- the flowing in of the tide …
With respect to general flooding, coverage is for water that has overflowed its confines and as such, the water that enters in below the lowest basement floor or the subsurface of the ground should be covered.
QUESTION:
My agency wrote businessowners coverage for two separate LLCs and an individual on 1/29/09. The two LLCs occupy a building owned by the individual. Each business has contents in the building, and the individual also personally owns some of the contents.
The individual is a member of each LLC.
We also wrote the individual's homeowners and auto insurance on 3/2/09.
In the process of writing this coverage, the individual also asked us to write his flood insurance on the commercial building. He had this coverage with a previous agent through another service provider. That policy was in the name of the individual, and we duplicated that coverage. However, we did not question the ownership of the building or contents.
On 11/23/11, the insured filed a claim with us for a flood loss, both building and contents. Upon investigation, the carrier paid $39,535 on the building but denied the insured's claim on the contents in the amount of $11,189.52, due to the named insured not having an insurable interest. The carrier determined that the contents were owned by the LLCs, which were not named on the policy.
Also, when the premium was paid, one-third of the premium was paid by each entity, in separate checks, all cashed by the carrier.
Does the individual, being a member of the LLCs, have an insurable interest in the contents?
Pennsylvania Subscriber
ANSWER:
Only the LLC would have an insurable interest in the property belonging to the LLC and the individual, while a member of the LLC, would not have an individual interest. We agree with the carrier: the LLC would need to be an insured on the individual's policy in order for there to be coverage for the LLC's personal property inside the individual's building.
QUESTION:
If there is water damage to the lower cabinets but not to the upper cabinets does the pair and set clause provide coverage for replacement of the upper cabinets even though there was no direct damage from flood?
Texas Subscriber
ANSWER:
The flood policy is very clear about paying for damaged property only; the pair and set clause reads as follows:
- Pairs and Sets
In case of loss to an article that is part of a pair or set, we will have the option of paying you:
- An amount equal to the cost of replacing the lost, damaged, or destroyed article, minus its depreciation;
or
- The amount that represents the fair proportion of the total value of the pair or set that the lost, damaged, or destroyed article bears to the pair or set.
The policy pays for the damaged portion of the cabinets only, and not to replace the undamaged cabinets so that they match.
QUESTION:
We have a condominium with the attached Howsoever Caused Endorsement, and the insurance company is denying them flood coverage. They are not allowing this because it was not named a flood by FEMA, although it was a national disaster. There was so much rain due to Hurricane Maria that a creek near this condo overflowed, with water moving so fast it caused the land adjacent to the condo to settle down 17ft, which undermined the foundation of the building and pilings. The fast moving water caused erosion.
Can you tell us the definition of Howsoever? The endorsement does not state that it has to be flood declared by FEMA.
New York Subscriber
ANSWER:
There is no requirement in the definition of flood that it be declared a flood by FEMA, and even the NFIP form does not have such language. If the water was caused by a peril described in the definition, such as overflow of rivers which is your situation, the loss should be covered.
QUESTION:
We have a flood loss on a residential property covered by the standard flood policy that damaged the HVAC condenser unit on the outside of the building. The condenser is not repairable and will have to be replaced. Do we owe to replace the interior air handler, which was not touched by the flood waters? Please note the system uses R-22 Freon that is no longer in use.
Texas Subscriber
ANSWER:
Both the NFIP General Property Form and the Dwelling Form provide coverage for direct physical loss by or from flood. There is no coverage under either policy for power, heating or cooling failure unless it results from direct physical loss to the power, heating or cooling equipment at the location. There are no ensuing loss provisions. Ordinance or law coverage applies only to ordinances or laws that relate to state or local floodplain management laws or ordinances, such as elevating or floodproofing a building. There is no coverage in the NFIP forms. If you're using a different form, I'd need to see the policy.
QUESTION:
A commercial endorsement defines "flood" as follows:
A general and temporary condition of partial or complete inundation of two or more acres of normally dry land or of two or more properties (at least one of which is your property ) from
- Unusual or rapid accumulation or runoff of surface waters from any source
Insured had building water intrusion from surface runoff of less than two acres of water inundation of normally dry land, but another property not adjacent or contiguous—not directly connecting or neighboring but several properties away from insured—also sustained dwelling loss by runoff of water from the same storm. To qualify as flood, do the two properties that sustain damage need to be connected properties or directly next to each other?
Texas Subscriber
ANSWER:
Unfortunately, the definition does not make it clear whether the properties must be connected. Our inclination is that they do not need to be adjacent because the definition does not say so. However, that leaves a lot up to interpretation, such as how far away can two properties be to qualify?
We contacted the Federal Emergency Management Agency (FEMA) for clarification, and they said, "The two or more properties and/or acres referenced in the definition of a 'flood' must be neighboring (contiguous) properties. The properties/acres may not be separated."
QUESTION:
Our client has several buildings located in different parts of the country. One group of buildings had a flood loss last summer that damaged three buildings, personal property, and grounds. There were two policies in force: one, an NFIP flood policy with a $1,000 deductible, and the other a difference in conditions (DIC) policy, which has a $25,000 deductible. The flood adjuster applied the $1000 deductible separately to building and personal property, and paid a total of $14,593.78 ($20,593.78 ACV less $6,000 deductible). There was no coverage for much of the loss, which consisted of damage to the grounds including pumping creek water out of the outdoor swimming pool, and which amounted to nearly $30,000.
The adjuster for the DIC policy now seems to be applying the $25,000 deductible after he makes a deduction for both depreciation and the amount paid by the flood policy. But last year, when there was a package policy on the buildings with a $25,000 limit for flood, and the same DIC policy, the adjuster for a similar loss took into account the expenses not covered by the flood policy, like repair of grounds and cleanup of the pool, and did not adjust on an ACV basis. Are we missing something?
Pennsylvania Subscriber
ANSWER:
First, in regard to the loss to the land, unless the DIC policy states that it will cover land, the adjuster is probably correct in not including the expense to restore the grounds. However, having said that, a precedent was set in the previous loss adjustment and that may give you some negotiating power.
Second, the declarations page you furnished clearly states that valuation is on a replacement cost basis, not ACV. The adjuster should do an evaluation of the amount of loss based on replacement cost, and then make the necessary deductible subtraction.
Third, the DIC "other insurance" clause states that "if the other insurance is not sufficient to cover all of your loss, we will pay that amount in excess of the amount due from that other insurance, whether you can collect on it or not." So, if the amount of the replacement cost less the ACV, which was paid by the flood insurer, is greater than the DIC $25,000 deductible, the insurer owes that amount. For example, say the replacement cost is actually $50,000, the DIC insurer owes $50,000 minus $25,000. This scenario illustrates a common use of DIC policies, and that is to serve as excess coverage. For example, if the insured purchased $250,000 insurance under an NFIP policy, a DIC policy could be written with a $250,000 deductible.
QUESTION:
Insured has a standard personal auto policy. Insured is driving with his girlfriend (also named insured on the policy). The weather conditions were poor and very heavy rains flooded the road the couple was driving on. The vehicle was swept away down the road in the flood water. Both the driver and the passenger escaped the vehicle. The passenger escaped but the driver drown in the flood water. Is there BI coverage available to the insured driver or passenger? The cause of death was due to drowning not due to a motor vehicle accident, so it does not appear that coverage is triggered.
Maryland Subscriber
ANSWER:
Generally a Personal Auto Policy will state that in order to trigger coverage the insured has to be legally liable for bodily injury that is caused by an auto accident. Here there is no obvious liability claim, unless the insured-passenger can claim that the insured-driver was negligent when he drove down the flooded road. Although some courts have considered water as an object within the meaning of collision, in this case we cannot definitively say that this would be considered an auto accident.
In Part B of the insuring agreement, Medical Payments Coverage, the standard policy says that the insurer "will pay reasonable expenses incurred for necessary medical and funeral services because of 'bodily injury' caused by accident and sustained by an 'insured.'" An accident in Part B is different from an accident in Part A and requires only that the insured is injured while occupying a motor vehicle designed for use on a public road. Because the insureds were escaping the vehicle at the time of the bodily injury and death, they were technically occupying the vehicle at the time of the injuries. Since the bodily injury and death in this case both occurred while the insureds were occupying a motor vehicle designed for use on a public road, this is considered an accident under Part B, Medical Payments Coverage. Since the survivor in this case was an insured, any reasonable medical expenses will be covered. Also, since the standard policy includes coverage for funeral expenses, and because the driver was also an insured, the deceased driver's funeral services will also be covered.
Christine G. Barlow, CPCU
Christine G. Barlow, CPCU, is Executive Editor of FC&S Expert Coverage Interpretation, a division of National Underwriter Company and ALM. Christine has over thirty years’ experience in the insurance industry, beginning as a claims adjuster then working as an underwriter and underwriting supervisor handling personal lines. Christine regularly presents and moderates webinars on a variety of topics and is an experienced presenter.