The hurricanes in 2005 were an unfortunate wake up call to many home and business owners in the Southeast United States. During those storms and the weather that followed most of the damage to structures was caused by flooding.
The typical commercial property policy has a standard flood exclusion stating the insurer will not pay for:
Water Damage, meaning any loss caused by, resulting from, contributed to or aggravated by:This exclusion applies whether or not the water damage is caused by or results from human or animal forces or any act of nature.
- flood, surface water, waves, tidal water or overflow of any body of water, or spray from any of these, whether or not driven by wind.
- water or water-borne material which backs up through sewers or drains, or which overflows or is discharged from a sump pump, well or other system that is designed to remove subsurface water which is drained from the foundation area; or
- water or water-borne material below the surface of the ground, including water which exerts pressure on, or flows, seeps or leaks through any part of a building, sidewalk, foundation, driveway, swimming pool or other structure or water that causes earth movement.
This exclusion is the subject of many lawsuits since the hurricanes and will be the subject of lawsuits in years to come. Why? Because, in the insured's view point, a storm causing a dam or levy to break is not the same as the river rising. But, to the insurer these are the same things. Also, policies differ and some insurers have very ambiguous definitions of "flood." The law is that ambiguity in a policy is held against the insurer since they wrote the policy.
To protect your business from flooding you must purchase a separate flood policy or a flood endorsement. Insurers typically do not want to write flood policies because the risk is to difficult to quantify. This is why the federal government set up the National Flood Insurance Program through FEMA and the Department of Homeland Security.
Unlike other commercial insurance products where information about agents and premiums is difficult to track down, the NFIP website contains everything you need to know about flood insurance for your business insurance plan. The site has risk assessment tools and an agent locator as well as a listing of premiums.
Flood insurance is expensive. When coupled with wind insurance, the premiums can exceed $3,000 per month for a small business under $500,000 in value in a low risk area to over $7,000 per month for the same business in a coastal high risk area. These are very rough estimates and steps taken by your community to reduce risk, state programs, and a myriad of factors can reduce premium costs. The business owner needs to assess the risk and discuss it with their insurance professional.