Real Estate

Insurance Coverage for Flood Damage

The devastation caused by superstorm Sandy inspired many homeowners to take a fresh look at their insurance coverage, especially flood damage. A third of U.S. policyholders mistakenly believe that their standard homeowners’ policies cover flood damage. In fact, they do not.

Because flood zones are well-defined, and because many homeowners in these areas are sure to experience flood-related damage, very few buyers of flood insurance will never use the product. This makes is difficult for private insurers to “spread the risk” and make a profit. So, they avoid this business.

Exclusions for Flood Damage

A typical homeowner’s policy contains an exclusion for loss caused “directly or indirectly by flood, surface water, waves (including tidal waves and tsunami), tides, tidal water, overflow of any body of water, or spray from any of these, all whether or not drive by wind, including storm surge.”

Nationwide, only 20 percent of homes at risk for floods are covered by flood insurance.

Federal Flood Insurance

To fill the void in the private insurance market, the National Flood Insurance Program was created in 1968. Taxpayers subsidize premiums, which reflect less than half of the true risk value. These policies are available from insurance brokers who partner with the NFIP. Standard deductibles usually apply.

Standard flood insurance backed by this program covers up to $250,000 per dwelling and $100,000 for personal possessions (at cash value rather than replacement cost). It does not cover the contents of flooded basements other than boilers, washers and dryers, and other utilities. It does not cover relocation expenses.

Nationwide, about 5.6 million homeowners have NFIP-backed policies. The top ten states using the program are Florida, Texas, Louisiana, California, New Jersey, South Carolina, New York, North Carolina, Virginia and Georgia.

Needed to Buy Some Homes

In flood prone areas, the federal government requires private or NFIP flood insurance to secure mortgage loans backed by federal agencies such as the Federal Housing Administration and the Veterans Administration.

Private Flood Insurance

Private insurance brokers partner with NFIP to offer federal policies. A few insurers offer private flood coverage which may provide more coverage with higher limits than provided for in policies issued through NFIP, but they are pricey. Auto policies that provide “other than collision” or “comprehensive” coverage will cover flood damage to vehicles.

Plus, many homeowner’s policies contain “anti-concurrent causation” clauses that say insurance don’t have to pay claims that stem from a combination of covered and uncovered causes, like when flooding (uncovered) causes plumbing to back up (covered).

An Insurance Lawyer Can Help

The law surrounding flood insurance and flood insurance claims is extremely complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact an insurance lawyer.

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