After every major flood event, I am contacted by at least one business owner and/or condominium owner who suffered flood damage, filed their claim with their NFIP1 Flood Insurance Company (Allstate, Hartford, Wright Flood, Farmers, FEMA, etc.), and was then told by either the flood insurance company or adjuster that the flood insurance policy did not cover all of the buildings or structures on the property. The business owners are enraged because they were under the impression that all buildings on the property were covered.
Depending on the circumstances and facts of each case, there may be legal recourse against the Agent and/or Company who incorrectly procured, wrote, and issued the flood insurance policy. However, better to be safe than sorry, and ensure your business and/or commercial property has the proper flood insurance coverage before disaster strikes.
Commercial property owners and condominium property owners can procure flood insurance through the NFIP or one of its Write-Your-Own (“WYO”) Insurance Companies (Allstate, Hartford, Wright Flood, Farmers, American Bankers, etc.). Unfortunately, NFIP Flood insurance policies have very strict limitations and constraints, as discussed more below, and it may be necessary or preferable for some commercial property owners to purchase additional or supplemental flood insurance coverage through a private flood insurance company or purchase the entire flood insurance coverage through a private flood insurance company.
To ensure that your business or commercial property is properly covered with the necessary flood insurance, here are a few important tips to keep in mind obtaining coverage on a NFIP Flood Policy:
One Building Covered Per Policy
This is the big one – many commercial property owners do not realize that the General Property Standard Flood Insurance Policy (“SFIP”) offered only covers one building/structure on the property. The General Property SFIP states in bold “Only one building, which you specifically described in the application, may be insured under this policy.”2
This means that if there are multiple buildings or structures on the commercial property that need flood insurance coverage, a separate policy must be put in place for each building structure. Each building structure must have its own flood insurance policy for it to be covered.
Policy Coverage Up to $500,000 per Building Structure
The NFIP allows for up to $500,000.00 in flood insurance coverage for each individually insured building structure, and up to $500,000.00 in coverage for personal property or business contents within the covered building structure.3
If you believe that your commercial property building(s) need more than $500,000.00/building in flood coverage, seek additional flood insurance coverage through a private or excess flood insurance policy.
No Coverage for Business Interruption
NFIP flood insurance policies do not cover business interruption, lost business profits, etc. If you need/want flood insurance coverage for those damages, contact your insurance agent or broker to help you obtain coverage for those items as related to flood damage.
Scheduled Building Policy
For commercial property owners where the commercial property includes several building structures at one location, a Scheduled Building Policy may be an option for flood insurance coverage. Scheduled Building Policies are not frequently utilized in the NFIP flood insurance realm, but they are available to cover anywhere from two to ten separate building structures under one policy. However, the policy declaration page will be required to designate a specific amount of insurance coverage for each individual building. All buildings must have the same ownership and property location to qualify for this type of policy. I have seen these utilized before by school districts.
The policy declarations page(s) will include a list or schedule that delineates each building covered with the amount of insurance coverage for that building.
NFIP is Not the Only Option for Flood Insurance
Many commercial property owners and homeowners mistakenly believe that their only option for flood insurance coverage is through an NFIP policy (either written by FEMA or a WYO Company—Allstate, Hartford, Wright Flood, Farmers, American Bankers, etc.).
Generally, NFIP flood insurance is not the only option, and it is rarely the best option for commercial property. NFIP flood policies provide extremely limited coverage. They do not cover anything outside the four walls of the building; they are ‘direct-loss’ policies meaning they will only cover damages directly touched by flood waters; and they have very limited recourse in the event the claim is not handled correctly (you cannot sue the adjusters, or seek any damages for their bad behavior), they have little oversight and little incentive to properly address the claim – there are of course many claims professionals who properly handle claims nonetheless, but there are plenty who do not – and ultimately, many private flood insurance companies will offer broader coverage in the event of a flood.
As always, it’s important to know your options and to verify that the flood insurance coverage you need is in fact put in place. We always recommend that you contact a knowledgeable insurance professional to assist you in these matters.
1 National Flood Insurance Program (“NFIP”), is a federally backed program, managed by FEMA, that allows qualified property owners to purchase flood insurance coverage; https://www.fema.gov/national-flood-insurance-program.
2 General Property Standard Flood Insurance Policy at pp. 2; https://www.fema.gov/media-library-data/1449521770675-e0c4623964aaec64cb33a1d141fd6378/F-123_GeneralProperty_SFIP_102015.pdf.
3 National Flood Insurance Program Summary of Coverage