STEMMING A WATERY CONFUSION –UNDERSTANDING FLOOD INSURANCE BY: MR. MICHAEL BERG, CIRMS, CMCA, MBA, BERG INSURANCE AGENCY
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rose, by any other name, may smell as sweet. But a flood by any other name is just a watery mess. It might be that a pipe bursts in a home and floods rooms and hallways, or a levee breaks somewhere upstream and washes out a town. The cost of repairs to damaged property can be, and likely will be, extensive. In a general perspective, a flood can take on any number of imagined or perceived incarnations. But in the insurance world, a “flood” is a very specific event. Luckily, a property owner can buy insurance to cover the mitigation and repair costs of the loss. With the purchase of an insurance policy, an insured may receive financial assistance for costs associated with property repair after a loss. The insurance company defines a number of events, called “perils,” for which that assistance will be available. And, as a rule, “water” is an excluded peril. This is because water can damage property in many different ways. So, to clarify, insurance companies add coverage for certain occurrences of water damage, and then define those occurrences. For example, imagine a home or condominium unit with a burst pipe under the kitchen sink. Water is everywhere, but that’s not the event, water isn’t the peril. The peril is the sudden discharge of water from
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CONNECT MAGAZINE • ISSUE TWO 2021
a plumbing source. When that happens, the insurance company will provide assistance with the cost of repairs (subject to other policy conditions, of course). Or, maybe water has backed up through a toilet and spilled some very unsettling debris onto the bathroom floor. Water isn’t the peril. The peril is the backup of a sewer or drain. If that peril is covered by the insurance company, the insurance company will assist with the cost of cleanup and repairs. So what about water that inundates large portions of land, or water that flows out of a lake or reservoir after a dam fails? Well, water isn’t the peril. In this case, the peril is flood. Insurance carriers define a flood as: A general and temporary condition of partial or complete inundation of two or more acres of normally dry land area, or two or more properties from: • Overflow of inland or tidal waters • Unusual and rapid accumulation of runoff of surface waters from any source • Mudflow If a property is located in a normally dry area as defined above, and it is overrun by surface water, water isn’t the peril. The peril is a flood, and if flood insurance had been purchased by
the property owner, then the insurance carrier will be tapped to assist with the cost of repairs. How does a property owner know if they should purchase flood insurance? The Federal Emergency Management Agency (FEMA) has mapped and identified locations in relation to flood risk. The Agency maintains a rating scale for these locations known as Special Flood Hazard Areas (SFHA). The scale includes a requirement for the purchase of flood insurance for properties located in regions of particularly high risk of damage caused by a flood. If a property is in an SFHA where flood insurance isn’t required, the owner may still make the purchase if it gives them peace of mind. However, if flood insurance is required by the SFHA zoning, financial institutions will require the purchase of flood insurance in order to secure a property loan. What is in a name? Well, for insurance carriers, quite a lot. Your property may be flooded, but it may not be a “flood.” Find the actual source of the water to determine how insurance may play a part in property repairs. Michael Berg, MBA, CIRMS, CMCA is the owner of Berg Insurance Agency and may be reached at michael@ berginsurance.com
