Hurricane Season Puts Coastal Residences at Greater Risk; Now Is the Time to Get Coverage, I.I.I. Advises
INSURANCE INFORMATION INSTITUTE
New York Press Office: (212) 346-5500; media@iii.org
“FEMA’s 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 NFIP-covered buildings and their contents,” said
Loretta Worters, vice president of the I.I.I.
Damage by flooding, including storm surge, is not covered by standard homeowners or business owner’s policies.
“Home and business owners seeking to protect themselves from flood losses and associated damage from oil are urged to purchase a policy from the NFIP immediately,” Worters stated. She added that forecasts for a very active hurricane season, combined with the spillage of at least one million barrels of oil in the Gulf of Mexico, makes it more urgent to purchase flood coverage today than at any time before or since Hurricane Katrina struck the Gulf Coast in 2005.
“Oil in flood water is not a new issue for the NFIP, especially in riverine flooding,” explained James A. Sadler, CPCU, AIC, Director of Claims, NFIP. “In the past, the mixing of oil and other pollutants in flood waters resulted from damage caused by a storm.”
According to the NFIP, for coverage under the Standard Flood Insurance Policy (SFIP), the event must first be defined as a flood. In addition, there must also be direct physical loss to property by or from flooding for coverage to apply.
A flood is defined by the NFIP as a general and temporary condition of partial or complete inundation of two or more acres of normally dry land. The flood definition is also applicable to instances in which two or more properties, at least one of which is the policyholder’s property, are subject to partial or complete inundation from overflow of inland or tidal waters or an unusual and rapid accumulation of runoff or surface waters from any source or mudflow.
Other important clarifications made by FEMA include:
- National Flood Insurance Program policies for commercial buildings and contents coverages must be purchased separately and apart from residential NFIP policies. The commercial coverage for damage caused by pollutants is limited to $10,000.
- 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 Write Your Own (WYO) companies, private sector insurers who sell NFIP policies, retain the right to subrogate. In other words, if the policyholder makes a claim against an entity that caused a loss and recovers any money, the policyholder must pay FEMA or the WYO back before they may keep any of the money.
FLOOD INSURANCE BASICS
- Standard homeowners and renters insurance does not cover flood damage: Flood damage is excluded under most standard homeowners policies, although it is covered under the comprehensive section of a standard auto insurance policy. A flood insurance policy, which is available to homeowners and renters through the federal government and some private insurers, will cover flood-related losses.
- There is a 30-day waiting period before a flood insurance policy takes effect, so do not wait until flooding in your area is imminent to get the coverage.
- It’s simple to assess your flood risk: For more information on the level of risk in your area, visit the Your Flood Risk section of the NFIP website; in the lower left hand corner is a One Step Flood Risk Profile tool where you can enter your address to determine your level of flood risk.
- Flood insurance is easy to purchase: Federal flood insurance policies can be purchased directly from an insurance agent or a company representative, and are available to communities that participate in the NFIP. Nearly 100 insurance companies write and service NFIP policies. In order to find an agent or company in your area, go to FloodSmart.gov or call (888) 379-9531. Coverage is available for homeowners, renters, business owners, and condominium associations and owners.
- Flood insurance cost increases with the level of risk and amount of coverage needed: The annual premium for an NFIP flood policy starts at $119 and depends on factors such as whether or not there is a basement or enclosures, how many the structure has and elevation levels. For homeowners, the maximum amount of coverage is $250,000 for the structure and $100,000 for the contents. For businesses, the maximum amount of coverage is $500,000 for the structure and $500,000 for the contents. The NFIP policy provides replacement cost coverage for the structure of your home, but only on an actual cash basis for your possessions. Replacement cost coverage pays to rebuild your home as it was before the damage. Actual cash value is replacement cost coverage minus depreciation so that the older your possessions are, the less you will get if they are damaged. There may also be separate limits on coverage for furniture and other belongings stored in your basement.
- Excess flood insurance policies add an extra layer of coverage: A growing number of private insurers offer excess flood policies, which are intended to provide water damage protection to homeowners and business owners over and above the coverage provided by the NFIP. This gives policyholders the opportunity to insure their property up to its full value. Limits and coverage vary from company to company.
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