What Business Insurance Doesn’t Cover When It Floods
Andrew Reidy, Joe Saka and Jennifer Fasulo co-authored the article “What Business Insurance Doesn’t Cover When It Floods” (subscription required) for the Daily Journal.
The article provides best practices for evaluating insurance policies and handling claims related to flooding. The article begins:
In many places, businesses don’t think of flooding as a serious risk. But heavy rain is increasingly threatening homes, workplaces and jobsites as flooding, mudslides and landslides increase in frequency and severity across the country. Your insurance policies, specifically your builder’s risk or property policies, may already provide protection for you and your business, but some commercial policies do not.
1. Understand your location’s general risk of flooding
The Federal Emergency Management Agency, better known as FEMA, maintains a flood risk zone for every state. You can find the map here: FEMA Flood Map Service Center | Search By Address
2. Understand the scope and limitations of your current coverage
Review your policy carefully to confirm whether you have flood-related coverage. These coverage provisions can be styled as “natural catastrophe coverage,” “natural disaster coverage” or simply “flood coverage.”
If your policy does not have express flood-related coverage, check to be sure your company does not have add-on policies, or endorsements, specific to floods and other natural disasters (such as fire or earthquake).
Similarly, even where flood coverage exists, review any applicable sublimits carefully. Flood-related losses may be subject to lower sublimits than the overall policy limits, and separate sublimits may apply to specific categories of loss. Understanding these limits early will help you evaluate potential recovery and strategy.
Commercial property insurance policies may contain exclusions for natural causes of water damage, including flooding and damage caused by heavy rainfall. Keep this in mind when renewing your policies or reviewing your future options.
Common exclusions or limitations in your policy may include:
- Standard exclusions barring coverage entirely for natural disasters such as natural-cause-flooding, earthquakes or wildfires
- Flood damage exclusions based on your location in a high-risk area
- Damage to unprepared land or backfill
- Mold, mildew or moisture as the result of flooding or rainfall
- Other consequential losses as a result of flood damage
- Remedial costs if remedial action is not taken immediately
3. Understand your policy’s requirements for reporting a loss
If you have or suspect flood damage, immediately report the potential loss to your carriers in accordance with the reporting requirements in your policy. Many policies have specific timelines and reporting requirements for triggering coverage, including those related to flood damage. Check these important provisions in your policy immediately:
Notice provisions. Most policies have specific requirements for when and how you alert your insurer to any potential loss. It is imperative that you comply with these requirements and alert your insurer as soon as required. Among other steps, pay attention to ensure that any notice is sent to the specific address listed in your policy.
Limitations periods. Your policy may also put certain time constraints on losses and reporting. Check your policy period start and end dates to ensure your loss occurred during the coverage period. Rain and flooding can cause ongoing damage that worsens with time; many policies, however, will require you to make the proper notice at the outset, and continue to update the insurer as losses ensue. In the event your insurer denies coverage, your policy may also have a provision that limits the time period you may file a lawsuit against them.
Mediation or arbitration provisions. In the event of disputes, your policy may contain provisions that require the other party to consent to alternative dispute resolution (e.g., mediation or arbitration) before a lawsuit may proceed.
