Flood Insurance for Your Business

Floods can strike anywhere at any time and with almost no warning. Pictures of submerged land are common on the television news. Hurricanes Katrina and Rita in 2005 caused massive flooding in the south, but devastating floods have also attacked the Midwest, Mid-Atlantic states and New England in recent years. According to the Federal Emergency Management Agency, U.S. flood losses between 1994 and 2004 averaged more than $2.4 billion per year.

While most floods affect homes and commercial properties near water bodies, locations away from the water are not immune. FEMA reports that 25 percent of flood insurance claims comes from areas with a low-to-moderate risk of flooding. In these areas, flooding can result from torrential rainfalls, rapid melting of heavy snows, and breakage of water mains. Business owners who have not paid attention to their insurance coverage may be surprised when floods occur.

Standard commercial property insurance policies do not provide coverage for losses caused by water. A typical policy defines water as:

• Flood, surface water, waves, tides, tidal waves, overflow of a body of water, and spray from any of these, all whether driven by wind or not;
• Mudslide or mudflow;
• Water that backs up or overflows from a sewer, drain or pump; or
• Water under the ground pressing on, flowing or seeping through foundations, walls, floors or paved surfaces, paved and unpaved basements, or doors windows and other openings.

For financial protection from floods, businesses should consider buying a flood insurance policy from the National Flood Insurance Program.

The NFIP, a federal program administered by FEMA, offers flood insurance in communities that have agreed to adopt and enforce minimum floodplain management standards. More than 20,000 communities participate in the NFIP. Flood insurance covers losses caused by a general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or of two or more properties (at least one of which is the policyholder’s property) from:

• Overflow of inland or tidal waters
• Unusual and rapid accumulation or runoff of surface waters from any source
• Mudflow
• Collapse or subsidence of land along the shore of a lake or similar body of water. This must result from erosion or undermining caused by waves or currents of water that exceed normal levels and result in a flood.

Flood coverage can apply to both the building and its contents.  Separate deductibles apply for building damage and damaged contents. Normally, a 30-day waiting period applies from the date the business buys the policy before coverage begins.

Businesses can buy coverage through their insurance agent in amounts up to $500,000 for the building and $500,000 for its contents. Excess coverage may be available from specialty insurance companies. The cost of coverage varies by the risk; the premium will be relatively low in a low-to-moderate risk area and higher near bodies of water.

Every organization should consider purchasing flood insurance. No location is immune to the risk, the cost of coverage is much less than the cost of paying for repairs out of pocket, and the protection is more reliable than possible federal disaster assistance. Because the damage can be so devastating, the risk of flooding is something no organization can afford to ignore.