Widespread floods can be devastating to a business, causing excessive property damage and leave behind mold, mildew and thousands of dollars in repair costs. While businesses located near bodies of water or high-rainfall areas are smart to get flood insurance policies, business owners in lower risk areas may be wondering if it’s necessary to invest in flood insurance.
Working in the disaster recovery industry, we at ServiceMaster DSI stand firmly in the pro-flood insurance camp. No matter where you live, floods can happen unexpectedly at any time. The best time to protect your business is now, before disaster strikes.
However, business owners who want to make their own decisions on flood insurance are welcome to do so. This article is intended to provide you with some background information on flood insurance to assist in the decision-making process.
Who Needs Flood Insurance?
Let’s start with the most certain: Businesses in high-risk areas for flooding that have a government-backed mortgage are required as part of their mortgage agreement to have flood insurance.
Even if your mortgage is not government-backed, but you still operate in a high-risk area, your lender may require flood insurance anyway. In general, businesses in high-risk areas are wise to invest in flood insurance, which can save time, money and energy in an unexpected flood situation. (Not sure if you’re located in a high-risk area? FEMA offers a guide detailing your level of risk.)
For those in low-risk areas, insurance may seem like a poor investment at first glance, but your risk factor is never zero. In fact, it can be argued that low-risk areas are far less prepared for flooding than high risk, which has experience and infrastructure designed to battle floods. This means that when water surges, there’s an even bigger chance your business will be caught off guard. It’s better to have financial protection from flooding now rather than later.
Don’t Mistake Property Insurance for Flood Insurance
One of the biggest mistakes made by commercial property owners is to assume regular building insurance covers the property against flood damage. It does not. Sometimes part of this misunderstanding is because a property has flood insurance in addition to property insurance, but the owner has not fully read the policy and is not aware.
Additionally, if the property’s mortgage contract with the bank requires flood insurance, there is a possibility the insurance agent will add coverage without pointing out to the owner it has been included in the policy. This is not impossible, but it is rare. It’s generally safe to assume flood coverage is not provided unless your insurance agent specifically points it out and provides separate billing for the additional coverage.
Regular property insurance covers accidental damage to the property caused by things like a falling tree or personal injury from a slip and fall situation. Some property insurance policies even cover things like broken appliances or burst water lines. But flood coverage is a policy that must be obtained separately.
What Commercial Flood Insurance Does and Does Not Cover
It is important to note that flood insurance covers a very specific set of circumstances resulting in a flood caused by weather. Flood insurance does not cover damage caused by flooding as a result of a broken waterline, it only covers flooding caused by excessive rainfall.
Floods are considered to be rising waters from overflowing nearby bodies of water, heavy rainstorms, storm surges, broken dams, excessive snowmelt, and other cases where water covers at least two acres of your property. Water that comes from burst pipes, blocked gutters or other building issues will generally be under the jurisdiction of property insurance instead.
Contributing Risk Factors for Flood Insurance Coverage
Flood insurance coverage assumes appropriate drainage systems are in place and working as intended. An appropriate drainage system, in this case, can be defined as one:
- Located in a building designed by a licensed architect
- Designed specifically for that location by a third party engineering consultant
- Constructed by a reputable contractor
If your drainage system meets these requirements, rest assured it is assumed to be working and will not impede your flood coverage. It never hurts to double-check with your insurance agent to make sure your system is considered “working” in their eyes as well.
Like every other aspect of the building, a drainage system requires routine maintenance to assure it continues to function as originally intended. If such maintenance is neglected, and such neglect is proven to be the direct cause of the flood damage, the insurance policy may be considered void. Again, call your insurance agent prior to any disasters to define what maintenance and upkeep means in terms of your policy.
Outside of appropriate building design and drainage systems, there are other contributing risk factors involved with flood insurance that might affect the type and amount of coverage needed.
- Building Plans: A generic building plan isn’t always going to be appropriate for a flood zone area. Such a building might require a special drainage system, or perhaps an overbuilt foundation structure. The setting may prevent the building from having a basement, or even an accessible crawl space. Consult your insurance agent for risk factors in your building plan that may end up in coverage denial.
- 100-Year Storms: A “100-year storm” typically refers to an expected, intense storm that occurs “only every 100 years.” However, such storms do not actually stick to that century-long schedule. They may happen every 20 years in one area, yet only happen every 500 years in another, causing the “average” to be every 100 years. The historical occurrence of such a storm in your area, no matter how low risk, can also affect the type of policy needed and the price of the policy.
Always bring up concerns, questions and hypotheticals with your insurance company’s representative when purchasing flood insurance rather than waiting until after a flood occurs and the claim is being made. Not all insurance companies are the same, and even within the same company not all policies are the same.
Flood Insurance and Disaster Recovery Management
At this point, we hope you agree: it’s not a matter of whether or not your business needs flood insurance. It’s a matter of how much and what type of insurance is appropriate to the building’s specific needs.
Ultimately, the final decision comes down to what makes the building owner feel comfortable, and what the insurance agent determines is going to be appropriate. Arguably, after a flood occurs it’s more important to get the damage repaired immediately so your business can get back up and running as quickly as possible, and work out the liability issues later.
Partner with a Disaster Recovery Company
By partnering in advance with a team of disaster recovery experts, you automatically remove some of the stress and burden that comes with an expected flood. A good partner will be fully equipped to handle cleanup while working with your insurance company for physical repairs and billing.
When it comes to commercial flooding, the best offense is a good defense. The combination of a well-researched and understood insurance policy and a disaster recovery team always is the best defense your business can get.
ServiceMaster DSI offers a first-of-its-kind pre-disaster partnership providing customized solutions and protection before, during and after a disaster event. Click here to learn more about our proactive approach to disaster recovery.