What’s more disheartening than seeing your business destroyed by an unexpected catastrophe? – Being informed that your insurance company will not pay a dime. Business owners in the City are receiving letters from their insurers denying coverage for the damages caused on October 29, 2012. Denial letters cite policy language to the effect:


1. We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributed concurrently or in any sequence to the loss.

g. Water

(1) “Flood,” surface water, waves, tides, tidal waves, overflow of any body of water, or their spray, all whether driven by wind or not;

(2) Mudslide or mudflow;

(3) Water or sewage that backs up or overflows from a sewer, drain or sump; or

(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.

But if water, as described in (1) through (4), results in fire, explosion or sprinkler leakage, we will pay for the loss or damage caused by that fire, explosion or sprinkler leakage.

While it is true that most, if not all, commercial policies have flood exclusion provisions in the main property coverage section, most standard policies also contain additional coverages and endorsements that afford payment for business income losses despite the flood exclusion. Many Service Interruption and Equipment Breakdown and Civil Authority provisions should provide reimbursement for business income losses, regardless of the damages caused by flood.

Insurance companies have a duty to thoroughly investigate losses and liberally evaluate coverage in favor of their policyholders. For example, a denial letter that minimally relies on the flood exclusion as a reason for nonpayment leaves a lot to be desired after an event like Hurricane Sandy. Fire and explosions at ConEd’s 13th/14th Street Substation were widely documented and reported, and the government did not allow access to many areas. Had the fire and explosion not occurred, the power outage likely would have only been of short duration. Businesses probably would not have suffered as significant losses. At a minimum, insurance companies owe their policyholders specific explanations as to why these events are not covered.

If you have received a denial letter for your business income losses, please contact an experienced policyholder advocate to review your claim and your policy and give you an opinion on the validity of your claim.