The Federal Emergency Management Agency (FEMA) has confirmed that National Flood Insurance Program (NFIP) policies will cover property damage caused by oil in flood waters in the event of a defined flood.
The clarification comes after rising concerns over whether flood insurance policies would cover damage to homes and businesses if oil from the Deepwater Horizon spill mixes with flood waters, comes ashore during a storm and causes pollution damage to buildings.
In a memorandum to Write-Your-Own (WYO) flood program insurer participants, James Sadler, director of claims at the NFIP, said:
FEMA states that there must first be a defined flood as described in the Standard Flood Insurance Policy (SFIP) and that damage caused by the oil in flood waters is covered subject to the provisions of the SFIP. There must also be direct physical loss to property for flood coverage to apply.
Other key points made by FEMA are:
- Under the terms of the General Property Form of the SFIP (commercial buildings and contents coverages must be purchased separately), damage caused by pollutants is limited to $10,000.
- Damage to residential buildings and contents from pollutants is covered up to the policy limits, under the Dwelling form and the Residential Condominium Building Association Policy form.
- Damage to ground, soil or land caused by flood, oil, or flood water mixed with oil is not covered.
- The cost of complying with any local or State ordinance including one that requires special removal methods for oil is specifically excluded.
- There is no coverage for testing or monitoring of pollutants unless there is a law or ordinance requiring it.
- FEMA or the WYO companies retain the right to subrogate, i.e. if the policyholder makes a claim against an entity who caused a loss and recovers any money, the policyholder must pay FEMA or the WYO back before they may keep any of the money.
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